Credit-rating agency Moody’s facing lawsuit

Credit-rating agency Moody’s is facing lawsuit from the side of the US regulators over alleged false and misleading description of its ratings procedures.

Moody’s said that the US Securities & Exchange Commission had cautioned it in a “Wells notice” about the potential charges.

Earlier in 2008, the Financial Times had revealed that Moody’s had awarded incorrect ‘AAA’ ratings to billions of dollars in European constant proportion debt obligation due to an error in the credit-rating model.

Moody’s said that its staff violated policy, but added that it did not believe that violation of a company policy by an employee rendered that the policy itself was false and misleading.

Speaking on the topic, Moody’s added, “we will continue to vigorously defend against these suits as appropriate.”

The credit-rating agencies decide a company’s or a country’s credit is. But, these agencies have been facing criticism over questions of their powers, motives and timing of the ratings.

Critics are pointing out that Lehman brothers and insurance giant were given credit worthy status just before their collapse.

World’s three top rating agencies are Standard & Poor’s Moody’s and Fitch.