SEC will not pursue a fraud case against Moody’s over rating error

The US Securities and Exchange Commission has decided not to pursue a fraud case against Moody’s over a computer glitch that inflated ratings on some European debt.

The regulator yesterday cited uncertainty over its authority to bring the case in the US as the reason not to press a fraud enforcement action against the parent of Moody’s Investors Service.

The probe arose after it was revealed that a computer coding error caused the rating agency to wrongly assign “Aaa” ratings to complex European products known as constant proportion debt obligations.

The SEC said Moody’s found the problem in January 2007, fixed it the next month, but
waited until January 2008 before changing the underlying ratings, affecting nearly $1bn of debt.