SEC Fines Moody's: Incompetence and Lack of Due Diligence

The WSJ posted an article yesterday stating that Moody's has agreed to pay the SEC's fine of $16.25 million. Moody's has not admitted or denied fault, despite paying the fine.

Do you guys think Moody's is in the wrong? What does this reoccurrence say about the company?

More Information:

  • The settlement is related to regulatory investigations of residential mortgage bonds that Moody's rated incorrectly from 2010 to 2013. Hundreds of mortgage bonds collectively valued at over $49 billion had received incorrect ratings, and in 16 instances, Moody's changed ratings from "Aaa" to "junk" after discovering the errors.
  • Of the total fine, $15 million fine stemmed from Moody's failure to establish quality control and due-diligence checks. The other $1.25 million resulted from an issue where the firm's ratings of combo notes did not cover all the cash flows that investors could receive.
  • A similar fine was imposed on Moody's due to the financial crisis:

    Last year, Moody's agreed to pay $864 million to resolve investigations by the Justice Department and several states in connection with bond grades it issued before the 2008 housing collapse.

My Perspective:

I think this is an awful look for Moody's. It makes me wonder how strong their compliance/quality control department is or if they even have one at all. This issue seems to be repeatedly occurring since the 2008 financial crisis, and therefore, I do think Moody's is in the wrong despite not admitting it. The fact that this has continued to reoccur makes me question a lot more about the firm as well.

What do you guys think of Moody's compared to S&P Global or Fitch Ratings?

Comments (2)

Aug 29, 2018

Everyone knows ratings agencies are a joke.

Sep 3, 2018
Comment

Yung Bull