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California attorney general to investigate credit agencies’ possible role in financial crisis


September 21, 2009   by Canadian Underwriter


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California’s attorney general, Edmund G. Brown, has issued subpoenas to Standard & Poor’s, Moody’s and Fitch as part of an investigation into whether or not the credit agencies’ role fuelled the financial crisis.
“Standard & Poor’s, Moody’s and Fitch put their seal of approval on high-risk mortgage-backed securities, recklessly giving stellar ratings to shaky assets that proved toxic to the entire financial system,” Brown said in a statement.
“This investigation is meant to determine how these agencies could get it so wrong and whether they violated California law in the process.”
Brown has directed the agencies to provide by Oct. 19, 2009 information that will help answer the following questions:
•    whether the rating agencies failed to conduct adequate due diligence in the rating process;
•    whether the rating agencies gave high ratings to particular securities when they knew or had reason to know that high ratings were not warranted;
•    whether the rating agencies failed to comply with their own codes of conduct in rating certain securities;
•    whether the rating agencies profited from giving inaccurate ratings to particular securities;
•    whether the rating agencies made fraudulent representations concerning the quality or independence of their ratings;
•    whether the rating agencies compromised their standards and safeguards for profits;
•    whether the rating agencies’ statistical models captured the risk inherent in subprime and other risky assets and, if not, what was the rating agencies’ response; and
•    whether the rating agencies conspired with the companies whose products they rated to the detriment of investors.
When asked by Canadian Underwriter for comment on the investigation, S&P’s said it has received the subpoena and is reviewing it.
As of press time, Moody’s and Fitch could not be reached for comment.


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