Moody’s Says Whistleblowers Claims Unsupported

The WSJ reports law firm Kramer Levin — which was hired to investigate the most recent claims  from two Moody’s whistleblowers that company managers favored revenues over ratings quality — has preliminarily concluded those allegations are unfounded, Richard Cantor, the chief credit officer at Moody’s Investors Service, told the U.S. House Oversight Committee Wednesday.

Mr. Cantor said his company, which hired the law firm to investigate Eric Kolchinsky (a former managing director at Moody’s) and Scott McCleskey’s (a former Moody’s senior vice president of Compliance) complaints about the ratings firm, didn’t direct the investigation, and added that the law firm hired was given “unfettered access” to Moody’s records.

House Oversight Chairman Edolphus Towns (D-NY), told Cantor he wants Moody’s to turn over all the documents from the law firm’s investigation.

Besides probing the credit rating agencies, the congressional panel  is now questioning why U.S. securities regulators ignored warnings from former Moody’s Corp (NYSE:MCO) execs about the company’s weak compliance department and ratings process.

According to Reuters, Scott McCleskey, sent the SEC a letter in March 2009 alleging that he was routinely ignored when he raised questions about the firm’s monitoring methods of municipal bond ratings.

Kolchinsky, who says the firm is still issuing artificial high ratings to complex debt securities, tried to tell the SEC about his concerns but his calls were not returned.

These are certainly serious allegations. What’s more troubling however, are allegations that the SEC ignored the whistleblowers’ concerns. This could be another black mark against the regulator. But as we all know, won’t be the first.

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