Moody's Faces Subpoena in Financial Crisis Inquiry

Posted by Ben Protess

The congressionally appointed panel that’s investigating the financial crisis issu
ed its first subpoena Wednesday – to a company we’ve been examining because of its r
ole in the financial crisis.
Moody’s Corp., one of the world’s largest credit rating agencies, has come under fir
e for awarding rosy ratings to mortgage investments at the center of the financi
al meltdown. Standard & Poor’s and Fitch, the other top rating agencies, also issu
ed inflated grades to investments that turned out to be toxic.
As we’ve reported, the agencies – whose opinions influence investors as they decide
what to buy and sell – have operated largely unfettered by Congress or the Securit
ies and Exchange Commission. The raters also are undefeated in the courts, where
they have defended themselves against investor lawsuits by arguing that their b
ond ratings are editorial opinions, constitutionally protected free speech.
New financial regulations now taking shape in Congress could make a dent in this
untouchable status. In turn, as we noted recently, the raters are breaking thei
r own spending records on lobbying.
The subpoena could prove to be a setback for Moody s.
The Financial Crisis Inquiry Commission, created by Congress to investigate the
causes of the 2008 financial collapse, has itself faced criticism. Media reports
, including our own, noted that the FCIC hadn’t issued one subpoena in the course
of its yearlong investigation.
In a statement, the FCIC said that it subpoenaed Moody’s for “failing to comply with
a request for documents in a timely manner.”
It’s unclear what documents the commission wants. We called them to find out. In r
esponse, commission spokesman Tucker Warren said in an e-mail: "The Commission r
equested essential documents and emails critical to our investigation and gave M
oody’s a reasonable timeframe to comply. They failed to do so."
In a statement released Tuesday, Moody s said it s working hard to comply with
the FCIC s request.
“Moody’s has and continues to devote substantial resources to producing documents an
d making our people available to the FCIC, our regulators, State Attorneys Gener
al, Congress and many others tasked with understanding the financial crisis and
the role of the rating agencies.”