This is huge. The SEC is investigating if rating agency Moodys is qualified to be in business.
Well at least it took Moodys under two months to report this massively material development, which while we are not positive on how to read the C&D action on the NRSRO registration, could mark the beginning of the end for the rating agency. If the firm is enjoined from providing additional rating research should the SEC action find fault and proceed with a lawsuit, it would mean game over for the business.
This should have happened long ago. The scam – and it was a deliberate perversion of GAAP (Generally Accepted Accounting Principles) – was that investment banks would package up toxic subprime slop into securities then get Moodys or another rating agency to sign off on it. If top-rated Moodys ok’ed the slop, then it magically got transformed from junk status and assumed Moodys top-rated status.
If you put a turd in a pretty box, it is still a turd. But for years such sleazy, unethical, and criminal ratings were going on. Yes, I said criminal. You’d have to be painfully naive to not think kickbacks and bribery were rampant in this process.
So now, SEC has lowered the boom on Moodys. Good.
Corporations are required by law to disclose a Wells Notice as a Form 8-K within four days. Moodys didn’t, instead waiting almost two months to disclose then buried it at the end of an 10-Q.
It’s time to take out the garbage on Wall Street.