Moody’s Gets Notice from SEC: May Lose Status as Rating Agency

Editor’s Note: Hard to say which way this will go, but it SHOULD go negative for Moody’s, Fitch and Standard and Poor’s. This was appraisal fraud at the OTHER end of the lending chain. Investors were misled as to the value of the security not only because the home appraisals were inflated, and not only because the viability of many of the loans ran from “sure to fail” to dubious, but because the amount of funding from the investors was far more than the amount of funding of the mortgages.

Deep in the pile of documentation, credit enhancements. etc. is the fact that investment bankers took money from investors and DIDN’T invest it. The ratings agencies all had people who realized this and reported it internally. The Triple AAA ratings came spewing out nonetheless because the rating agencies, like the property appraisers and mortgage brokers, were getting paid a premium to lie.

Moody’s Gets “Wells Notice,” SEC May Order Ratings Agency To “Cease And Desist”

Possible blockbuster news buried in Moody’s 10Q and discovered by Zero Hedge:

The SEC has hit Moody’s with a “Wells Notice” pertaining to the company’s application to be recognized as a ratings agency. Wells Notices are usually precursors to full SEC complaints (and most of them result in the agency going forward with charges). The SEC is preparing to file a “cease and desist”.

It’s not clear how broad the threat is here. It might just require Moody’s to re-file its application.  If the action could be a “cease-and-desist from being a ratings agency,” however, Moody’s is potentially screwed.

Here’s the complete language from the 10Q:

On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MIS’s initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006.

That application, which is publicly available on the Regulatory Affairs page of http://www.moodys.com, included a description of MIS’s procedures and principles for determining credit ratings. The Staff has informed Moody’s that the recommendation it is considering is based on the theory that MIS’s description of its procedures and principles were rendered false and misleading as of the time the application was filed with the SEC in light of the Company’s finding that a rating committee policy had been violated. MIS disagrees with the Staff that the violation of a company policy by a company employee renders the policy itself false and misleading and has submitted a response to the Wells Notice explaining why its initial application was accurate and why it believes an enforcement action is unwarranted.

And here’s the finding and commentary from Zero Hedge:

And now for today’s bombshell – literally at the very end of Moody’s 10-Q filed last night, we find this stunner:

On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MIS’s initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006.

4 Responses

  1. Foreclosure is indeed a harsh practice and can have some undesirable impacts on the victim, his social, personal and professional life. We need to work out ways to get the percentage of property defaulters reduced Some of these can be Foreclosure Workout, Short Sale, Bankruptcy, Deed in Lieu, Assumption/Lease-Option.

    Cash bad credit | Quick loan | Cash payday loans

  2. It’s difficult to think clearly when you’re caught up so emotionally in the process. Am I correct in assuming that you are a foreclosure victim?

  3. Bob G
    They did invest the $ …”in Their own pockets”
    Maybe its just me…But the thought of JP Morgan ,Rothchild, Rockefeller,Bush
    swinging from the end of a rope “sings true Karma” to me!

  4. So where does one find the following fact revelation in the cited documents?

    “Deep in the pile of documentation, credit enhancements. etc. is the fact that investment bankers took money from investors and DIDN’T invest it. “

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