Powerful democrat US senator Chuck Schumer wrote to SEC chairman Christopher Cox on Wednesday in light of the FT’s exclusive on Moody’s flawed rating of CPDOs. Schumer, who sits on the banking, housing and urban affairs committee of the Senate, and also the finance committee, called too for fines to be imposed on Moody’s.
May 21, 2008
Christopher Cox
Chairman
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Chairman Cox,
I write today to urge you to take decisive action in response to the revelations about Moody’s incorrect ratings that were reported today in the Financial Times. The ratings inaccuracies that were disclosed are deeply troubling. However, the fact that Moody’s only downgraded these incorrectly rated products in January of 2008, nearly a full year after they became aware of the problem, is much worse, and is indicative of a culture of shirking responsibility that must end.
I urge you to fully investigate this matter and impose appropriate sanctions on Moody’s for their failure to disclose their ratings errors to the investor community. Although the products in question appear to be confined to the European markets, Moody’s actions in this case are further evidence that the ratings agencies do not have effective controls and procedures in place to monitor their own activities, which have broad implications for the U.S. financial markets and U.S.-based investors.
When you testified before the Senate Banking Committee last month, you discussed pending SEC rules to further implement the Credit Rating Agency Reform Act of 2006. I urge you to ensure that those rules will ensure that the rating agencies have strong internal controls to prevent these kinds of situations from happening, and when faced with a situation similar to the one Moody’s found itself in, to require the agencies to immediately and fully disclose the nature of their errors to the investment community.
Thank you for your consideration of this issue. I look forward to continuing to work with you as Congress and the SEC endeavor to reform the ratings process.
If you have any questions, please don’t hesitate to contact my staff at 202-224-6542.
Sincerely,
Charles E. Schumer
United States Senator
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Related links:
Senator seeks probe of Moody’s errors - FT
