Dodd-Frank Law Lets SEC Pursue Overseas Credit-Ratings Fraud

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According to various sources, the U.S. Securities and Exchange Commission (SEC) plans to use new financial laws to pursue credit-rating fraud initiated overseas.  This decision came after SEC dropped a fraud case against Moody’s Corp citing uncertainty over its authority to bring the case in the United States.   

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.   According to the SEC report, the committee declined to correct errors produced by a flawed ratings model out of concern for the firm’s reputation.    The uncertainty regarding a jurisdictional nexus between the U.S. and the relevant ratings conduct led the SEC to drop the probe.

However, 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.

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.    According to Bloomberg data, the ensuing credit crisis resulted in $1.8 trillion in writedowns from financial firms worldwide.

Anna Timone (195 Posts)


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