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Wednesday, February 26, 2020

Calif. AG accuses Wall Street firm of ignoring subpoena

By Chris Rizo | Apr 19, 2010

Jerry Brown (D)

SACRAMENTO, Calif. (Legal Newsline)-California Attorney General Jerry Brown on Monday said he is asking a judge to compel Moody's Investors Service Inc. to comply with a state subpoena in the investigation of the company's ratings of risky mortgage-backed securities.

Brown has accused Moody's and other Wall Street credit-rating firms of contributing to the near-collapse of the U.S. financial services industry and the housing market meltdown in recent years.

The attorney general filed the original subpoena against Moody's last year, seeking information about the bond-rating company's evaluations of asset-backed securities. Brown said the Moody's Corp. unit has refused to comply, forcing him to file a petition for enforcement.

"The need for court action to enforce a state subpoena is highly unusual because companies almost always comply without such a drastic step being necessary," Brown said. "The people of California have the right to know how this credit rating agency got it so wrong and whether it violated California law in the process."

The documents sought by state will document Moody's "role in the housing and Wall Street meltdown," Brown said, explaining that the documents will explain why the New York-based company gave its highest ratings to "risky and toxic" mortgage-backed securities.

The subpoena seeks to determine, among other things, if Moody's knew the AAA bond-ratings it gave to high-risk securities were warranted, whether the company made fraudulent representations about the fairness of its ratings and if Moody's "conspired with companies it rated to the detriment of investors."

Brown and some other Democratic state attorneys general, including Richard Blumenthal of Connecticut and Richard Cordray of Ohio, have said bond-rating firms' malfeasance allowed many investors' portfolios to be chocked-full of risky securities.

Brown said Moody's and other ratings agencies colluded with the same Wall Street firms that created the securities, earning billions of dollars in revenue. He said Moody's and other credit-rating firms were paid nearly double for rating mortgage-backed securities than they did for rating other securities.

"A central question in the aftermath of the financial meltdown is whether Moody's gave investment banks and other securities packagers unwarranted high ratings at the expense of investors, who depended upon the integrity and independence of Moody's ratings," Brown said.

Moody's objected to the original subpoena, saying that the state lacked jurisdiction. Brown is also investigating bond-rating firms Fitch Ratings and Standard & Poor's, a McGraw-Hill Company.

From Legal Newsline: Reach staff reporter Chris Rizo at

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Moody's Investors Service