Moody's Says Review Sees No Wrongdoing
OCTOBER 1, 2009
By SERENA NG and SARAH N. LYNCH
A senior Moody's Corp. executive said at a congressional hearing that an outside legal firm investigating claims of misconduct by a former analyst has so far found no evidence of wrongdoing.
But the update on Wednesday from Richard Cantor, chief credit officer of Moody's Investors Service and chief risk officer at the rating firm's parent, raised questions from lawmakers over how the findings of the investigation were reported back to Moody's and regulators.
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Moody's Ex-Compliance Head to Testify Mr. Cantor told the House Committee for Oversight and Government Reform that Moody's hired law firm Kramer Levin Naftalis & Frankel LLP to investigate a July complaint submitted internally by Eric Kolchinsky, a managing director who left Moody's in mid-September.
Mr. Kolchinsky alleged in his 14-page complaint that Moody's knowingly gave inflated ratings to some complex securities in January 2009 when the ratings firm, he says, was planning to downgrade assets that would impair the securities.
Kramer Levin interviewed 22 individuals and was given "unfettered access" to Moody's records, Mr. Cantor said, adding the law firm's preliminary findings "are consistent with Moody's internal review -- that the claims of misconduct are unsupported." He went on to say that issues Mr. Kolchinsky raised were "of longstanding and healthy debate" within Moody's.
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Moody's executive Richard Cantor, right, in Washington on Wednesday with former officers Eric Kolchinsky, left, and Scott McCleskey, center.
A Moody's spokesman said the law firm previously hadn't done work for the ratings firm and Kramer Levin reported its findings directly to Moody's senior management, its board, and regulators. A House oversight committee spokeswoman said Kramer Levin said that its findings will be reported verbally.
At the end of the 3½-hour hearing, committee chairman Edolphus Towns (D, N.Y.) expressed frustration that no written report is planned. He said he wants Moody's to turn over all documents from the investigation. Mr. Cantor said he was "confident they will be able to comply."
Mr. Kolchinsky and another former Moody's officer, Scott McCleskey, testified at the same hearing on Wednesday on what they view are continuing problems with oversight of ratings firms and the challenge of managing conflicts of interest.
Mr. Kolchinsky also said at the hearing that the Securities and Exchange Commission contacted him last week to discuss his allegations.
Mr. McCleskey, who was head of compliance at Moody's between April 2006 and September 2008, said he was "pushed out" by the firm when it replaced him with an individual that was previously responsible for rating residential mortgage-backed securities, the instruments at the heart of the financial crisis.
