(Reuters) - Japan’s Mizuho Financial Group Inc (8411.T) (MFG.N) is likely to face civil charges over the sale of a $1.6 billion mortgage bond deal five years ago, which led to losses for investors, the Wall Street Journal said, citing people close to the investigation.
Investors who bought pieces of the mortgage bond called Delphinus CDO 2007-1 allegedly were not told that a hedge fund was betting that some of the subprime loans and other assets bundled together in the CDO would decline in value, the Journal said.
The SEC intended to file charges against firms and people involved in the creation of Delphinus, including Mizuho, the newspaper said. Some people close to the case believed the SEC should proceed with a civil lawsuit no later than next Thursday, it said.
“Mizuho Securities has been asked by the U.S. Securities and Exchange Commission (SEC) for information on its CDOs and is cooperating,” a spokesperson told Reuters. She declined to comment further.
A collateralized debt obligation, or CDO, is a type of derivative product whose value and payments are derived from an underlying portfolio, often bonds or mortgages.
The SEC has also asked Standard & Poor’s Ratings Services, which provided a triple-A rating on the Delphinus deal, to waive its right to seek dismissal of any civil suit against it, the newspaper said.
An S&P spokesman declined to comment to the Journal. The firm could not immediately be reached for comment by Reuters outside regular U.S. business hours.
Last year, S&P said SEC staff were considering recommending that commissioners take action against the company for violating securities laws in its ratings of the Delphinus CDO.
Reporting by Sakthi Prasad in Bangalore and Emi Emoto in Tokyo; Editing by Richard Pullin