The U.S. Justice Department is preparing a civil complaint against Moody's, alleging violations of federal law in the run-up to the financial crisis. Jeanne Yurman reports.
Eight years after the fact Moody's says the U.S. Justice Department is planning to target it with a lawsuit over agency's ratings in the run-up to the 2008 financial crisis The suit alleges Moody's violated the Financial Institutions Reform, Recovery and Enforcement Act while rating residential mortgage-backed securities and collateralized debt obligations. Credit rating agencies have come under fire for inflating ratings and understating risks on mortgage-backed securities before the financial crisis. This to gain business from the investment banks that issued those securities. Moody's rival, Standard & Poor's, agreed to pay the DoJ, 19 states, and the District of Columbia a total of $1.5 billion to resolve lawsuits over ratings on securities that soured. Peter Appert of Piper Jaffray. (SOUNDBITE) PETER P. APPERT, MANAGING DIRECTOR, SENIOR RESEARCH ANALYST, PIPER JAFFRAY & CO. (ENGLISH) SAYING: "Frankly, my interpretation of this is that the case against Moody's must be relatively weak, certainly much weaker than the case they had against S&P. Otherwise, they would have pursued is sooner." Appert also says Moody's will most likely settle for a similar amount to the S&P's settlement, and the best option for the agency would be to do it as quickly as possible to avoid extra costs.