(Reuters) -
An ex-Moody's Corp derivatives analyst said the credit-rating agency
intimidated and pressured analysts to issue glowing ratings of toxic complex,
structured mortgage securities.
In a
78-page letter to the Securities and Exchange Commission, William Harrington
outlined how the committees that make the ratings decisions are not independent
and how managers often intimidated analysts.
"The
management of Moody's, the management of Moody's Corporation and the board of
Moody's Corporation are squarely responsible for the poor quality of previous
Moody's opinions that ushered in the financial crisis," he wrote.
"The
track record of management influence in committees speaks for itself -- it
produced hollowed-out (collateralized debt obligation) opinions that were at
great odds with the private opinions of committees and which were not durable
for even a short period after publication," he added.
Harrington's
August 8 letter, which was sent in response to a 517-page proposal by the SEC
on credit-rating regulations, raises similar issues that are already at the
heart of a Justice Department probe into McGraw-Hill's Standard & Poor's.
"We
cannot emphasize strongly enough the importance Moody's places on the quality
of our ratings and the integrity of our ratings process," said Moody's
Corp spokesman Michael Adler. "For that very reason, we have robust
protections in place to separate the commercial and analytical aspects of our
business, and our ratings are assigned by a committee -- not by any individual
analyst."
The Justice
Department has been looking into what S&P analysts wanted to do with
ratings during the financial crisis, and what they were told to do, according
to one source familiar with the matter.
A second
source has said the department also has been investigating Moody's in
connection with structured product ratings during the crisis, although the
exact focus on that probe is unclear.
Earlier
this year, a U.S. Senate panel led by Michigan Democrat Carl Levin found that
Moody's and S&P helped trigger the financial crisis after the two rating
agencies gave overly positive ratings to toxic mortgage-related products and
then later downgraded those ratings en masse.
Last year's
Dodd-Frank Wall Street overhaul law tightens regulations for raters, including
improving the transparency of the methodology used and curbing potential
conflicts of interest. The SEC in May issued a proposal seeking comments on
many of the Dodd-Frank provisions on rating agencies.
Harrington,
who said he worked as an analyst in the derivatives group from 1999 until July
2010, said he thinks that if the SEC's proposed rules had been in place in
2002, they would still not have gotten to the heart of the problems at Moody's.
"Many
of the proposed rules still give more license to the management of Moody's to
step up its long-standing intimidation and harassment of analysts, to the
detriment of opinion formation," he said.
(Additional
reporting by Jeremy Pelofsky)
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