- Title: Moody's says DoJ preparing complaint alleging rating violations
- Date: 21st October 2016
- Summary: NEW YORK, NEW YORK, UNITED STATES (FILE) (REUTERS) VARIOUS OF MOODY'S BULDING
- Embargoed: 5th November 2016 18:28
- Keywords: Moody's ratings financial crisis Great Depression Moody's Investor Services Financial Institutions Reform Recovery and Enforcement Act Department of Justice lawsuit
- Location: NEW YORK, NEW YORK, AND SAN FRANCISCO, CALIFORNIA, UNITED STATES
- City: NEW YORK, NEW YORK, AND SAN FRANCISCO, CALIFORNIA, UNITED STATES
- Country: USA
- Topics: Company News Markets,Economic Events
- Reuters ID: LVA00154Y8F4D
- Aspect Ratio: 16:9
- Story Text: Moody's Corp., parent of ratings agency Moody's Investor Services, said on Friday (October 21) the U.S. Justice Department was preparing a civil complaint against the company, alleging violations of federal law in the run-up to the financial crisis. The complaint alleges Moody's violated the Financial Institutions Reform, Recovery and Enforcement Act while rating residential mortgage-backed securities and collateralized debt obligations.
Moody's has periodically received subpoenas and inquiries from government authorities, including the Department of Justice, over its handling of the mortgage bonds before the global credit crisis of 2008.
Credit rating agencies have come under fire for inflating ratings and understating risks on mortgage-backed securities in the run-up to the financial crisis to gain more business from the investment banks that issued those securities. Rival Standard & Poor's agreed to pay the DOJ, 19 states and the District of Columbia a total of $1.5 billion to resolve lawsuits over ratings on securities that soured. Moody's, S&P and Fitch Ratings dominate the ratings market. The big three ratings agencies accounted for roughly 2.3 million of the 2.42 million credit ratings outstanding by the end of 2014, according to an SEC report.
"Frankly, my interpretation of this is that the case against Moody's must be relatively weak," says Peter Appert, managing director at Piper Jaffray. "Certainly much weaker than the case they had against S&P. Otherwise, they would have pursued is sooner."
Moody's Corp. also reported that third-quarter net income attributable to the company rose 10.2 percent to $255.3 million for the three months ended Sept. 30. Revenue rose 10 percent to $917.1 million, reflecting higher levels of bank loan and speculative-grade bond issuance as strong investor demand and tighter credit spreads drove debt refinancing activity. Moody's shares were down 0.6 percent at $107.50 in premarket trading. Up to Thursday's close, the stock has risen about 7.8 percent this year.
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