Prematurely downgraded?

11 May 2010 By Agnes Crane

Investors sent its stock down 7 pct on Monday. They are right to be nervous the SEC’s investigation threatens the company’s businesses. But unless there’s a fundamental change in the whole system of credit ratings, Moody’s may be more resilient than shareholders think.

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Moody's Investors Service said in a regulatory filing on May 7 that the Securities and Exchange Commission is investigating whether the company made false or misleading statements when it applied for its designation as a nationally recognized statistical rating organization in 2007. The rating agency has formally rebutted the accusations, Moody's said in a regulatory filing.

Moody's stock fell sharply on May 10, down 7 percent in afternoon trade to fetch $21.77 a share. The Dow Jones Industrial Average, meanwhile, surged 4 percent, or more than 400 points, as investors cheered the nearly $1 trillion rescue package for Europe's weak nations.

Recently, a court ruled that a California Public Employees' Retirement System lawsuit against Moody's, as well as rivals Standard & Poor's and Fitch Ratings, could proceed. Calpers filed the suit in 2009, alleging the rating agencies' inaccurate ratings caused the pension fund to lose $1 billion on its investments in complex debt instruments.

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