WASHINGTON–In a case that will resonate with any credit union or corporate CU, Moody’s Corp., which is the world’s second-biggest ratings firm, said it expects the Justice Department to sue it over bond grades it issued prior to the 2008 housing market collapse.
The U.S. plans to bring a case against Moody’s that alleges violations related to residential mortgage bonds and other complex securities, according to the Wall Street Journal, which cited a Sept. 29 letter from federal authorities. Moody’s said “a number” of states are also pursuing a case, according to the Journal.
The Justice Department has been investigating Moody’s for its falsely optimistic grades on much of the Wall Street paper, such as collateralized mortgage obligations, that was sold in the years prior to the crisis, which came about in part because much of that paper turned out to be exactly that.
To date ratings firms have paid approximately $2 billion in fines and settlements related to that crisis-era behavior, a fraction of the amount paid by U.S. banks for missteps during the same period, the Journal reported. Moody’s agreed seven months ago to pay a $130-million settlement with a public pension fund that had alleged “negligent misrepresentations” surrounding residential mortgage bond deals.
“Any settlement with Moody’s is likely to be large, but the case has proven more difficult than the one against S&P, people familiar with the matter have said,” according to the Journal. “Moody’s kept its ratings information more tightly guarded than S&P, with a policy of quickly wiping emails, making for a thinner paper trail, these people said.”