California Real Estate Fraud Report

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19
Apr

Attorney General Brown takes Moody’s to court

Attorney General Edmund G. Brown Jr. announced he is taking bond rating firm Moody’s Investor Service to court to force it to explain how it decided to give its highest ratings to subprime mortgage-backed securities that ruined investors and caused the government to force taxpayers to bail out the makers of these “risky and toxic” financial products. Moody’s had refused to respond to the Attorney General’s subpoena, forcing Brown to take court action.

Brown accuses Moody’s and other ratings firms of working closely with the Wall Street firms that formulated the securities in order to earn what amounted to billions of dollars in revenue from those same firms, ignoring ethical, regulatory and legal considerations about remaining “arm’s length” as a rating agency.

“A central question in the aftermath of the financial meltdown is whether Moody’s gave investment banks and other securities packagers unwarranted high ratings at the expense of investors, who depended upon the integrity and independence of Moody’s ratings,” according to AG Brown. 

The subpoena from Attorney General Brown’s office seeks to learn:

– Whether Moody’s knew that the AAA ratings it gave to high-risk securities weren’t warranted
– Whether Moody’s made fraudulent representations about the quality of its ratings
– Whether Moody’s made fraudulent representations concerning the independence of its ratings
– Whether Moody’s conspired with companies it rated to the detriment of investors
– Whether Moody’s profited from giving inaccurate ratings to some securities
– Whether Moody’s compromised its own standards and safeguards in order to increase its own profits.

Read the press release by the California Attorney General’s Office.

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