SEC Refuses To Sue Moody's Over Computer "Glitch" Which Inflated Ratings By 1.5-3.5 Notches On Thousands Of CDOs
Another day, another SEC farce. Today, Schapiro's captured henchmen sent a notice to credit rating agencies about internal conduct and
methods the firms use to determine the riskiness of financial products. As the alternative was to pursue a fraud enforcement action, in this particular case against Mark Zandi's Moody's, one can see why the SEC opted out for the action that would not implicitly open it up as well to like legal treatment by millions of investors, who had kinda, sorta hoped that the SEC would not allow this kind of fraud in the first place. As Housing Wire reports, "the SEC announcement stems from an inquiry by its enforcement division into whether Moody's Investors Service violated registration provisions or anti-fraud provisions of federal securities laws." Additionally, "the commission notes that Dodd-Frank gives federal district courts jurisdiction over SEC enforcement actions that allege violations of the anti-fraud provisions of the securities laws." In other words, while the SEC is a toothless, gutless, corrupt POS, others may take offense to this lack of responsible action and sue Moody's directly. And what is the reason for the SEC investigation? Why, a computer "glitch", which "inadvertently" raised the ratings of various CDOs by up to 3.5 notches! Housing Wire notes: "The SEC inquiry stems from allegations that a Moody's computer coding
error improved, "by 1.5 to 3.5 notches," the credit ratings for certain
debt obligation notes." Yet having been caught with its pants down was not enough for Moody's to actually fix the "glitch" - "shortly thereafter during a
meeting in Europe, a Moody's rating committee voted against taking
responsive rating action, in part because of concerns that doing so
would negatively impact Moody's business reputation." And people are surprised that wholesale market manipulation occurs on a day to day basis, with the ongoing blessing of the SEC...
From Housing Wire:
The report also notes the Dodd-Frank Act amended the securities laws
to require nationally recognized statistical rating organizations
(NRSROs) to "establish, maintain, enforce, and document an effective
internal control structure governing the implementation of and adherence
to policies, procedures, and methodologies for determining credit
ratings," according to a release from the SEC.
"Investors rely upon statements that NRSROs make in their
applications and reports submitted to the commission, particularly those
that describe how the NRSRO determines credit ratings," said Robert
Khuzami, director of the SEC's division of enforcement. "It is crucial
that NRSROs take steps to assure themselves of the accuracy of those
statements and that they have in place sufficient internal controls over
the procedures they use to determine credit ratings."
All of this of course is irrelevant: as long as the institutional investors continue to be uberlazy, and refuse to do their own work, when instead they can offload it to such mutants as Moody's, why not? And if at the end of the day, they can blame the rating agency for (complicit) fraud, corruption and incompetence, so much the better: after all it will merely deflect attention from their own sorry, and overpaid behinds.