In their Q3 earnings report, Moody's Corporation reported that they were preparing to receive a civil complaint from the Department of Justice.
In the litigation update section of their earning statement Moody’s states: “In a letter dated September 29, 2016, the Department of Justice stated that it is preparing a civil complaint to be filed against Moody’s and MIS in the US District Court for the District of New Jersey alleging certain violations of the Financial Institutions Reform, Recovery, and Enforcement Act in connection with the ratings MIS assigned to residential mortgage-backed securities and collateralized debt obligations in the period leading up to the 2008 financial crisis.”
In the letter, the Justice Department cites that its investigation remains ongoing and may expand to include additional theories. Likewise, it is also included that a number of states attorneys general have indicated that they also expect to pursue similar claims under state law. These claims could include additional periods, theories, asset classes or activities.
Moody’s says that it is continuing to respond to the Department of Justice’s subpoenas and inquires as well as ones received by states.
This is not new territory for world’s second largest rating firm, though.
Following the global credit crisis of 2008, Moody’s reports that it has periodically received subpoenas and inquiries from various governmental authorities, including the Justice Department and states attorneys general.
Ratings firms including S&P Global Ratings have paid close to $2 billion in fines and settlements all stemming from the same time period. The Wall Street Journal adds that any settlement with Moody’s is anticipated to be substantial as this case has proven to be more difficult than others like it.