Moody’s Discloses Receipt of Wells Notice from SEC

Moody’s disclosed on Friday that it has received a Wells notice from the SEC indicating it may be sued for filing false and misleading descriptions of its credit-rating policies.

Elizabeth Nowicki, a former SEC lawyer, told Bloomberg that it is rare for the SEC to go after the ratings agencies. “It’s impossible to ignore the fact that folks at the SEC have indicated they’re concerned with the role the credit ratings agencies had in supporting the crisis,” she said.

Specifically, according to Moody’s Form 10-Q filed May 7,

On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the SEC 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.

Moody’s added in the disclosure that it

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.

Subscribe to Securities Docket by Email