SEC Says Dodd-Frank Law Lets Agency Chase Overseas Ratings Fraud

[dipsydoodle]

Source: Bloomberg

The U.S. Securities and Exchange Commission said it plans to use new financial laws to pursue credit-rating fraud initiated overseas after dropping a case against Moody’s Corp. amid uncertainty over its authority.

The SEC’s investigation found that a Moody’s ratings committee based in Europe refused to lower inflated grades on almost $1 billion of debt in 2007, the agency said in a report released yesterday. The committee declined to correct errors produced by a flawed ratings model out of concern for the firm’s reputation, the SEC report said.

“Uncertainty regarding a jurisdictional nexus between the U.S. and the relevant ratings conduct” led the SEC to drop the probe, the agency said in the report. That uncertainty was removed by the Dodd-Frank law, enacted in July, which clarifies the SEC’s power to sue for misconduct that has a substantial effect within the U.S., the report said.

Ratings companies Moody’s, McGraw-Hill Cos.’ Standard & Poor’s unit and Fitch faced scrutiny from Congress and state regulators after they assigned top marks to U.S. subprime- mortgage bonds before that market collapsed in 2007. The ensuing credit crisis resulted in $1.8 trillion in writedowns from financial firms worldwide, according to Bloomberg data.

Read more: http://www.bloomberg.com/news/2010-08-31/sec-says-it-declined-to-sue-moody-s-for-fraud-over-company-s-cdo-ratings.html

[w4rma]

1. Very good. (nt)

[pleah]

2. K&R

[No Elephants]

3. Fraud in the U.S. by ratings companies re: mortgage derivatives was a cause of our economic collapse

We had and have laws that allow prosecution, but I don't think anyone is bothering to prosecute.

Is this law better than no law? We had probably had jurisdiction anyway, but sure, spell it out for the SEC. Do laws on the books actually protect us? Dunno.