California Accuses Moody's of Stonewalling Ratings Investigation Subpoena
California asked a court to enforce a subpoena against Moody’s Investors Service Inc. that demands documents in an investigation of the company’s evaluations of asset-backed securities linked to subprime mortgages.
California Attorney General Jerry Brown filed the original subpoena in September seeking records from the Moody’s Corp. unit and today filed a petition for enforcement, Brown said in a statement.
“The need for court action to enforce a state subpoena is highly unusual,” Brown said in the statement, “because companies almost always comply without such a drastic step being necessary.” Moody’s, which played a central role in the run-up to the collapse of housing prices, has refused to explain its ratings practices to the state and said it would be a “waste of time” to respond to the subpoena, Brown said.
Brown has said the investigation will determine whether Moody’s violated state law when it gave the highest ratings to securities that fell so much in value that they jeopardized investors’ savings and put homeowners into foreclosure.
Moody’s has been working with Brown’s office for months to provide documents for the investigation, Moody’s spokesman Michael Adler said in a phone interview.
“In fact, we’ve already provided the attorney general with tens of thousands of pages of documents in response to his request and are continuing to provide additional material,” Adler said. “We will maintain our ongoing dialogue with the attorney general to resolve the concerns he raised today.”
On Sept. 17, Brown issued subpoenas to Moody’s, Standard & Poor’s and Fitch Group Inc. directing them to provide information by Oct. 19 to show whether they failed to do adequate due diligence or gave high ratings to particular securities when they knew or should have known the ratings weren’t warranted.
According to today’s court filing, Moody’s initially said it wanted to cooperate with the investigation and later refused to provide complete responses to Brown’s questions. Moody’s “refuses to comply” after Brown’s office again met with the company to persuade it to “abandon its boilerplate objections and answer the subpoena,” according to the filing.
Brown hasn’t yet determined whether he will seek the same enforcement requests against Standard & Poor’s and Fitch Group, his spokeswoman, Christine Gasparac, said in an e-mail message.
The case is Brown v. Moody’s Investors Service Inc., BS126002, California Superior Court (Los Angeles).
To contact the reporter on this story: Joel Rosenblatt in San Francisco at email@example.com.