Tuesday, February 3, 2015

Thug Politics: U.S. Justice Department Investigating Moody’s for Promoting Risky Mortgages


NEW YORK – The U.S. Department of Justice is investigating Moody’s Investors Service for allegedly issuing excessively optimistic risk assessments on mortgage deals prior to the 2008 financial crisis, The Wall Street Journal reported Monday.

The investigation into Moody’s became known shortly before federal authorities announced a record fine, expected to exceed $1.3 billion, being levied on Standard & Poor’s Ratings Services for similar practices.

The Justice Department has spent months meeting privately with former Moody’s employees as part of the investigation into how the ratings agency prepared risk assessments of mortgage deals before the crisis.

The investigation is still in the initial phases and it is still not clear whether or not any lawsuit will be filed against Moody’s, the newspaper reported, adding that in any case U.S. authorities have had their eye on the firm’s activities since 2010.

Meanwhile, the Justice Department is on the verge of closing its case against Standard & Poor’s.

The government in 2013 filed a civil lawsuit against S&P for knowingly deceiving investors about the quality of its mortgage-backed securities and other investments in the years prior to the bursting of the financial bubble.

Once the case is finalized, it will be the first large fine levied on one of the risk-rating agencies as a result of the financial crisis, since – to date – the fines have been focused on the large Wall Street banks.

S&P, Moody’s and Fitch’s share about 95 percent of the world credit-rating market and thus they played a fundamental role in guaranteeing the financial quality of certain securities that later proved to be quite risky, costing investors billions.


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