Moody’s Investor Service Cautioned by SEC

Jack Humphrey, Regulatory journalist
September 01, 2010 /

Moody’s has been under the scanner for maintaining dubious ratings conduct. The Securities and Exchange Commission is suspecting a possible fraud at the MIS or Moody’s Investors Service. The Commission issued report warning credit rating agencies of a fraud and has asked for an investigation into the matter.

During an investigation conducted by SEC it was found that an error in computer coding was detected by an analyst at MIS in 2007. This implies that the credit ratings issued were not correct and higher ratings were being given to debt obligation notes.

The rating committee of Moody’s Investors Service, however, voted against the coding error being rectified as they felt that it would reflect adversely on the business and goodwill of the company. This has made the position in this matter a bit tricky as it goes against the regulatory norms.

Although the Securities and Exchange Commission disapproves of the conduct of MIS,  it stated that it would not be able to bring any civil suit against it. SEC stated that deceptive or frauds happening in Europe do not come under its jurisdiction and hence it is not in a position to take any legal action against the defaulting credit rating company.

According to the SEC report MIS has failed to adhere to the policies and rules of conduct mentioned in the application submitted for being approved as NSRO or nationally recognized statistical rating organization.

Robert Khuzami showed his concern by stating that it was unfair to the investors who depend considerably on the credit ratings given by such organizations. NRSROs have a reputation of being authentic and if they fail to maintain accuracy of the statements issued by them then it does need some sort of control over its methods of determining credit ratings.


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