MANHATTAN (CN) – A former manager sued Moody’s in a qui tam complaint, claiming the ratings service cost the federal government billions of dollars by falsely evaluating mortgage-backed securities and collateralized debt obligations before the financial crisis.
Ilya Eric Kolchinsky sued Moody’s on Feb. 24, 2012 in a sealed complaint.
The complaint was unsealed on May 30 this year, after the United States declined to intervene.
According to the 107-page complaint: “Between 2004 and 2007, Moody’s issued credit ratings for tens of thousands of U.S. residential mortgage backed securities (‘RMBS’) and collateralized debt obligations (‘CDOs’). Motivated by Wall Street firms; willingness to pay hundreds of millions of dollars in fees to obtain investment-grade credit ratings, and Moody’s single-minded desire to increase its share of the lucrative and increasingly competitive CDO and RMBS markets, Moody’s issued its highest rating, Aaa, and similarly positive investment grade credit ratings, for the vast majority of those RMBS and CDO securities. Unbeknownst to investors, these ratings were not the product of independent, objective calculations, but rather the result of concealed conflicts of interest and Moody’s reckless profit-maximization policies. Moody’s concealed its profit-driven ratings inflation practices by its certification to the SEC to the contrary – that its rating reflected legitimate practices and policies. Moody’s certifications were a lie.”