Moody’s Avoids Lawsuit

February 9, 2011 by · Leave a Comment
Filed under: SEC, The Rating Agencies 

The Securities and Exchange Commission (SEC) announced that they were not going to file suit against Moody’s for fraud even though it had evidence that the firm had knowingly misled investors.

According to The Washington Post, Moody’s executives discovered they had provided ratings that were too optimistic but had chosen not to correct them because, “downgrades could negatively affect Moody’s reputation.”

The SEC explained that it did not file suit because of “jurisdictional” limitations; the activity occurred in Europe and was, at the time, outside the agency’s authority.

The agency did say, however, that the decision may have been different if the fraudulent activity had taken place after it was given the power by Congress to sue credit-rating firms engaged in “otherwise extraterritorial fraudulent misconduct” in the financial regulation overall legislation that was enacted this summer.

The SEC usually does not issue a report when it is not going forward with a suit, but The Washington Post clarifies that in this case, “…agency officials said they wanted to send a message in reviewing their findings in the Moody’s probe that credit-rating firms would face increased scrutiny.”

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