WASHINGTON
– The Securities and Exchange Commission rebuked Moody's Investors Service on
Friday for failings that it said "may compromise" its compliance
office, which is supposed to ensure the integrity of the firm's work.
It was the
first SEC report on credit ratings agencies since the commission was given
stronger oversight authority over them. The staff report followed examinations
and audits of 10 certified raters. The report doesn't name Moody's, but makes
it abundantly clear that Moody's is the embattled company that's being
criticized.
Moody's has
been under fire for several years since McClatchy Newspapers and others
reported that it sacrificed quality analysis in exchange for profiting from the
Wall Street investment banks that nearly brought down the U.S. financial system
in 2008. A Senate panel found last year that more than 90 percent of Moody's
AAA ratings on complex mortgage bonds later proved wrong.
All that
happened because of a hamstrung compliance office, congressional investigators
and a special inquiry commission concluded. Friday's report suggests that more
needs to be done to clean up compliance at Moody's.
Ratings are
a signpost for investors of the risk of default on bonds. Moody's poor
performance on rating complex bonds sparked numerous lawsuits, along with
probes by the SEC and the Department of Justice. No ratings agency official has
faced criminal charges to date.
Before the
financial crisis, there was no direct regulation over ratings agencies. A
revamp of financial regulation in July 2010 gave the SEC that power, and Friday
was its first comprehensive examination of companies that were key sparks of
the financial crisis.
Moody's
took the criticism in stride.
"Moody's
welcomes the SEC's constructive recommendations to our industry," said
Michael Adler, a spokesman in New York.
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