UPDATE:Moody's Has No Paper Trail Of Outside Kolchinsky Probe
September 30 2009 - 4:27PM
Dow Jones News
The chairman of the U.S. House Oversight Committee on Wednesday
expressed disbelief that an outside investigation of complaints
against Moody's was being conducted orally and won't conclude with
a formal written report.
Chairman Edolphus Towns, D-N.Y., made his comments at the close
of a hearing where two ex-Moody's employees told lawmakers they
believe Moody's still faces conflicts of interest, inflates its
ratings and failed to update stale ratings on municipal bonds.
"This morning we learned that this outside firm was given only
oral instructions. Moody's says there is no written statement of
work and no contract," Towns said. "This outside firm is not
expected to produce any written report of its findings and has no
schedule for completion."
"In other words, the Moody's business model could be summed up
as 'Leave No Fingerprints,'" Towns added.
Moody's Corp. (MCO) in late July hired Kramer Levin Naftalis
& Frankel after former employee Eric Kolchinsky wrote a draft
internal memo raising his concerns.
Kolchinsky was suspended from the company on Sept. 3. He
contacted the Securities and Exchange Commission a few days
later.
A Moody's spokesman said the company provided Kramer Levin
copies of Kolchinsky's written concerns and asked the law firm to
report its findings to senior management, the company's board and
regulators. The law firm has already interviewed 22 Moody's
employees.
"Moody's has pledged its full cooperation with the
investigation, but has not dictated the scope or timing of Kramer
Levin's work," the spokesman said. "Moody's has full confidence in
this process."
Moody's chief credit officer Richard Cantor told lawmakers at
the hearing that preliminary findings by the outside firm showed
that Kolchinsky's complaints were "unsupported."
At the hearing, Towns said he wants to see documents from the
outside probe into Kolchinsky's claims, and Cantor said he thought
the company would be able to comply.
But a few hours later Towns said Moody's told the committee
there are no documents. "Kramer Levin says this is their 'normal'
behavior - they never produce written reports," Towns said.
Kolchinsky was suspended in September after he refused to meet
with a lawyer from Kramer Levin without his own legal
representative present.
A second former Moody's employee, former chief compliance
officer Scott McCleskey, testified at the hearing. McCleskey's
testimony focused on March discussions he had with the SEC about
the 2008 replacement of compliance officers with analysts and
managers who were previously involved in rating structured-finance
and mortgage securities. He said he was "pushed out" by Moody's in
September last year.
- By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com
(Serena Ng contributed to this article.)