SEC lacks authority to charge a 'foreign' Moody's

[Another whitewash. One corrupt government department absolves another corrupt, but private, company of wrongdoing.]

SEC says it lacked authority to charge Moody's
SEC says it lacked authority to charge Moody's over high ratings for risky investments
Marcy Gordon
On Tuesday August 31, 2010, 7:23 pm

WASHINGTON (AP) -- The Securities and Exchange Commission has declined to seek fraud charges against Moody's Investors Services over its ratings of risky investments that led to the financial crisis.

But the SEC said it decided against seeking civil charges only because it determined it lacked authority to charge a foreign affiliate of Moody's.

Instead, in a report on its investigation, the SEC warned all credit rating agencies that they could face charges if they mislead investors with deceptive ratings.

Investors rely on the statements these agencies make in their applications and reports to the SEC, Robert Khuzami, the SEC enforcement director, said in a statement.

"It is crucial that (rating agencies) 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," he said.

The warning is the latest step by the SEC to address the conduct of major financial firms that contributed to the Wall Street meltdown. Goldman Sachs & Co. agreed in July to pay $550 million to settle civil fraud charges related to its sales of mortgage investments. And Citigroup Inc. agreed to pay $75 million to resolve charges it misled investors about billions of dollars in potential losses from subprime mortgages.

The financial overhaul law enacted in July calls for reducing the influence of the big three rating agencies -- Moody's, Standard & Poor's and Fitch Ratings. They were discredited in the financial crisis for giving high ratings to risky mortgage securities.

The financial overhaul law also gave the SEC authority to pursue alleged fraud by foreign affiliates of U.S. rating agencies that could have a significant effect within the U.S.

The SEC accused Moody's of failing to disclose ratings misconduct by a European affiliate when it registered with the agency, as required by law at that time. Because the alleged misconduct occurred before the financial overhaul law took effect, the SEC said it lacked jurisdiction to pursue an enforcement case against Moody's.

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