U.S. regulators, as part of a broad probe of how Wall Street firms bundled mortgage-linked financial products as the housing crisis worsened, notified a former Mizuho Financial Group Inc. (MFG) executive he may be sued for his role in structuring the securities.
Alexander Rekeda, who previously headed structured credit in the Americas at Mizuho, received a so-called Wells notice in October informing him that Securities and Exchange Commission staff intends to recommend an enforcement action against him for allegedly making misrepresentations about a collateralized debt obligation, according to his public broker filings.
Rekeda was part of a group of about 10 traders who left Calyon, the investment-banking unit of Credit Agricole SA (CRARY), in 2006 to join Mizuho, helping the Japanese lender bolster its U.S. mortgage-backed-securities business as the housing market began to decline. As defaults on subprime home loans climbed, Mizuho struggled to find buyers for its CDOs and, as their values plummeted, had to absorb billions of dollars in losses.
The SEC, in the past three years, has targeted firms and individuals for their roles in creating and selling products linked to risky mortgages. Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) all have been accused by the agency of failing to tell investors about such products’ risks.
Mizuho came into the spotlight in September after Standard & Poor’s, the world’s largest provider of credit ratings, said it could face SEC claims tied to the top grade it gave in 2007 to a $1.6 billion CDO that the Japanese bank underwrote. The CDO, known as Delphinus, was downgraded within six months of getting the top grade, and was rated junk by the end of 2008.
“We received a request from SEC to provide documents related to CDO origination and sales,” Masako Shiono, a Mizuho spokeswoman, said in a phone interview. “We are now working on meeting that information request.”
Shiono, who was asked when the information request was made, declined to comment further. Steven Kobre, a lawyer representing Rekeda, declined to comment.
The Wells notice was reported earlier by the Wall Street Journal.
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