US agency renews probe into Moody’s pre-crash ratings

BURSTING BUBBLE::The US Department of Justice could end its case against Moody’s top rival as soon as this week, according to unidentified sources


Tue, Feb 03, 2015 - Page 15

The US Department of Justice is seeking to advance a probe that is more than five years old into whether Moody’s Investors Service inflated ratings during the US housing boom, according to three people familiar with the matter.

The US government is continuing interviews with former Moody’s executives on whether the ratings agency bent criteria on how to assess structured finance products to win business from US banks, according to two people familiar with the matter. They asked not to be identified because the investigation is ongoing.

It is unclear whether the probe will result in a lawsuit, and any action against the company would not be imminent, one of the people said.

The US is wrapping up a case against Moody’s main competitor, Standard & Poor’s, as soon as this week, people familiar with the matter have said. The unit of McGraw Hill Financial Inc could pay about US$1.4 billion to resolve claims it bent its ratings criteria to win business. The world’s largest credit rater will not admit wrongdoing, one of the people said.

Anthony Mirenda, a Moody’s spokesman, did not return a request for comment outside of business hours. Patrick Rodenbush, a spokesman for the justice department, declined to comment.

The Wall Street Journal reported the recent interviews earlier on Sunday.

Moody’s has had success defending lawsuits. Of the almost five dozen that have been filed since 2007, fewer than a quarter of those cases remain, Moody’s general counsel John Goggins said on an investor call in September.

Ratings firms were blamed in a US Senate investigation for helping trigger the financial crisis by awarding top grades on bonds backed by subprime mortgages to win business from US banks. Downgrades on the securities helped wipe out almost US$11 trillion of household wealth, the US Financial Crisis Inquiry Commission said in its 2011 report.

The justice department sued S&P in 2013, accusing it of inflating grades on mortgage-backed securities half a decade earlier and of lying about its rankings being free from conflicts of interest.