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Univ. of Toledo College of Law

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Tuesday, November 9, 2010

SEC Issues Cease and Desist Order Against Former President of NRSRO

The SEC issued an administrative Cease-And-Desist Order against Damyon Mouzon, the former President of registered Nationally Recognized Statistical Rating Agency (NRSRO) LACE Financial Corporation (LACE). The Order finds that Mouzon was a cause of LACE's misrepresentations in its application to become registered as an NRSRO and its accompanying request for an exemption from a conflict-of-interest provision. Exchange Act Rule 17g-5(c)(1) (the Ten Percent Rule) prohibits an NRSRO from issuing or maintaining a credit rating solicited by a person that, in the most recently ended fiscal year, provided the NRSRO with net revenue equaling or exceeding ten percent of the NRSRO's total net revenue for the fiscal year. In its NRSRO application and request for an exemption from the Ten Percent Rule, LACE materially misstated the amount of revenue it received from its largest customer during 2007. The Order finds that, as LACE's President, Mouzon was responsible for ensuring the accuracy of the information provided to the Commission in connection with LACE's NRSRO application and its request for an exemption from the Ten Percent Rule, and that he knew or should have known that LACE's representations regarding the amount of revenue received from its largest client during 2007 were inaccurate.

The Order also finds that Mouzon caused LACE to violate certain other provisions governing NRSROs by (a) failing to disclose in its NRSRO application that it performed an extra layer of review when determining credit ratings for certain issuers whose securities made up the pools of asset-backed securities managed by LACE's largest customer, (b) failing to maintain written policies and procedures governing this extra layer of review, and (c) failing to maintain all e-mails concerning its credit ratings. The Order finds that Mouzon knew or should have known that LACE was required to disclose the extra layer of review performed for certain issuers in its NRSRO application and maintain written policies and procedures governing this extra layer of review, but failed to ensure that LACE did so. The Order also finds that Mouzon knew or should have known that, as a registered NRSRO, LACE was required to retain all e-mails relating to its credit ratings, but failed to ensure that LACE did so.

 Mouzon consented to the issuance of the Order without admitting or denying the findings.

http://lawprofessors.typepad.com/securities/2010/11/sec-issues-cease-and-desist-order-against-former-president-of-nrsro.html

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