Challenges in the Investigation of Rating Agencies Admitted by the SEC

Challenges in the Investigation of Rating Agencies Admitted by the SEC

10/18/2011

 

The United States Securities and Exchange Commission is faced with a lot of obstacles in their quest to show proof of any wrongdoing committed by rating agencies. This was revealed by the enforcement chief of the agency, who also pointed to the complexity of the cases as well as the strong legal defenses of the industry.

The comments of SEC Enforcement Director Robert Khuzami to Reuters came one day after McGraw-Hill Companies Inc disclosed on Monday that the rating agency may file a lawsuit against its Standard & Poor’s division for breaking securities laws.

Khuzami refused to comment particularly on S&P, but his statements show how a case against credit raters like S&P would not be that easy to win.

During the interview, the SEC Enforcement Director said, “There are some statutory challenges in the law, and some disclosure-related challenges that are unique to credit-rating agencies that can make the cases more challenging.”

However, he added, “But we don’t let that stop us from investigating possible misconduct. We are looking hard at them.”

The investigation of the SEC into S&P may lead to its filing of charges against one of the major credit-rating agencies for its grading of intricately structured products during a financial crisis.

The descriptions of Khuzami of the challenges his department faces come as legal and financial experts puzzle over why the U.S. SEC has has taken a step against only the S&P when other agencies like Moody’s Investors Service and Fitch Ratings of Fimalac SA also gave the same bonds their highest grades only months before they were marked down.

Janet Tavakoli, a finance consultant, said, “I just don’t get why S&P is being singled out here. I don’t see much difference between the ratings from the three agencies.”

WRITTEN BY:

blakeh@wellsdrew.com