Mizuho to pay $127m to settle CDO charges Japan's Mizuho Securities and an investment manager have agreed to pay a combined $132m to resolve US regulatory allegations they misled investors in a mortgage-related product by stuffing it with phoney securities to secure a higher credit rating. The Securities and Exchange Commission also filed and simultaneously settled civil allegations against three former Mizuho employees, including the head of the desk that structured the deal, and a portfolio manager at Delaware Asset Advisers, the firm that managed the $1.6bn collateralised debt obligation named Delphinus CDO 2007-1. Mizuho is the fifth bank sued for misleading investors in the sale of a collateralised debt obligation and the case involves the most individuals charged in one CDO case. Goldman Sachs, JPMorgan Chase, Credit Suisse and Citigroup all previously agreed to settle with the SEC. "This case demonstrates once again that bankers and market participants who embrace a "get the deal done at all costs" strategy will be identified, charged, and punished," said Robert Khuzami, director of the SEC's enforcement division. The SEC said its investigation is continuing. Standard & Poor's, a unit of McGraw-Hill, disclosed last year that it had been notified by the SEC that it may face civil charges in connection with the Delphinus CDO but it was not part of Wednesday's settlement. S&P declined to comment. A criminal investigation is also under way but it is not clear whether it will result in charges. The SEC settlement includes allegations the individuals were negligent and did not intentionally mislead investors, charges requiring a lower standard of proof than in a criminal case. Mizuho, which made $10m in fees for structuring the deal, agreed to pay $127.5m in disgorgement and penalties, while Delaware Asset agreed to pay $4.8m. Neither group admitted or denied any wrongdoing. The individuals each agreed, without admitting or denying wrongdoing, to settle by paying fines and accepting six-month to one-year suspensions from the industry. Mizuho said it co-operated and the activity was "isolated" to a few employees hired together in December 2006 and employed until December 2007. Mizuho said it is "committed to conducting its business with complete integrity and in strict compliance with all applicable laws and regulations." According to the SEC, the day before Mizuho was set to close the CDO, S&P changed its ratings methodology. As structured, the Delphinus CDOs would have failed to obtain a high rating. Throughout the night, the SEC alleges, Mizuho employees sent S&P alternative portfolios comprised of "dummy" assets, which are generally replaced later with actual assets of the same credit quality. Instead, the SEC alleges, Mizuho chose dummy assets that had superior credit ratings than the ones actually acquired and failed to tell S&P. "The Mizuho employees responsible for the transaction knew or should have known that if they had supplied S&P with the true asset portfolio on July 18 2007, Delphinus would not have received the necessary ratings and thus could not have closed as planned," the SEC alleged.