SEC Warns Moody’s Over “deceptive Conduct”

Bob Styran, IT audit expert
September 01, 2010 /

The SEC (Securities and Exchange Commission) has cautioned MIS (Moody’s Investors Service) about a possible deceptive ratings conduct. An SEC investigation has revealed that an analyst working for MIS had detected a computer coding error way back in 2007.

It meant that the model that was used by the company for certain kinds of debt obligation notes to determine that their credit ratings was not correct and was leading to ratings that were substantially higher than what was accurate.

The investigation further revealed that after the discovery, an MIS committee voted against taking steps and correcting the coding error. This move is seen as being partly a way to withhold the negative impact it may have had on MIS’s business reputation.

The MIS rating committee’s move is being seen by the SC as self- serving. The SEC report also said that the credit rating company’s conduct was directly contradictory to procedures that are used for the determination of credit ratings when the company approached the SEC for being given approval as an NRSRO (Nationally Recognized Statistical Rating Organization).

The director of the SEC’s division of enforcement, Robert Khuzami said that investors usually look into statements made by NRSRO’s in the reports and applications to the SEC and how the NRSRO determines its credit ratings is under a lot of scanner as well.

Khuzami also said that unless the NRSROs take stern steps to make sure that their statements are accurate and that there are sufficient internal controls over the procedure, investors would lose their faith.

The SEC has however said that no civil charges would be brought against MIS by it, considering that it was uncertain whether its jurisdiction would permit it do so, as the fraudulent conduct occurred in Europe.


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