Justice Department, states weigh action against Moody's

Thu Feb 7, 2013 7:35pm EST
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By Aruna Viswanatha and Luciana Lopez

(Reuters) - The Justice Department and multiple states are discussing also suing Moody's Corp (MCO.N: Quote) for defrauding investors, according to people familiar with the matter, but any such move will likely wait until a similar lawsuit against rival Standard and Poor's is tested in the courts.

Inquiries into Moody's are in the early stages, largely because state and federal authorities have dedicated more resources to the S&P lawsuit, said the sources, who were not authorized to speak publicly about enforcement discussions.

Moody's spokesman Michael Adler and Justice Department spokeswoman Adora Andy declined to comment for this story.

Moody's in the past has defended itself against similar allegations, including a 2011 congressional report that concluded the major ratings agencies manipulated ratings to drive business.

The firm previously said Moody's takes the quality of its ratings and the integrity of the ratings process very seriously. It also said the firm has protections in place to separate the commercial and analytical aspects of its business.

The U.S. Justice Department filed a $5 billion lawsuit against S&P late on Monday and accused it of an egregious scheme to defraud investors in the run-up to the financial crisis, fueled by a desire to gain more business.

Shares of McGraw Hill Cos Inc MHP.N, which owns S&P, have fallen more than 25 percent since news of the lawsuits. Moody's shares have fallen about 15 percent, even though it was not named in any of this week's actions.

"Don't think Moody's is off the hook," said one law enforcement official.   Continued...

A Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York, February 6, 2013. REUTERS/Brendan McDermid