WASHINGTON — Angered at what it viewed as foot dragging, a special panel charged with getting to the bottom of the nation's deep financial crisis issued a subpoena Wednesday to compel information from Moody's Corp.
It was the first such subpoena issued by the Financial Crisis Inquiry Commission, and comes just days before Moody’s CEO Raymond McDaniel Jr. is scheduled to appear before the Senate Permanent Subcommittee on Investigations.
In a statement, FCIC Chairman Phil Angelides and Vice Chairman Bill Thomas accused Moody’s of “failing to comply with a request for documents in a timely manner.”
Their subpoena follows a Monday news conference by California Attorney General Edmund G. Brown to announce court action against Moody's to compel the company to comply with a subpoena Brown issued seven months ago.
Moody’s is under pressure on many fronts for its role in providing the investment grade ratings to complex financial deals backed by U.S. mortgages that proved to be anything but investment grade. These deals helped deepen the nation's housing crisis, which provoked the broader financial crisis.
As a credit-rating agency, Moody’s enjoys free-speech protections since its business amounts to providing opinions about the credit worthiness of bonds and other securities. But the company is now facing class-action lawsuits, a suit by the state of Connecticut and a probe by the California attorney general because not only did it give an opinion but also consulted on the composition of complex deals it rated.
Legislation moving through Congress will impose tougher rules against this apparent conflict of interest, but the inquiry commission has until December to report back to Congress on the causes of the crisis and wants information now.
The commission had already announced it will hold a special hearing into the credit-rating agencies in the months ahead, and Wednesday issued the subpoena in reaction to the lack of movement by Moody’s on its requests.
“In seeking documents and testimony from public agencies and companies, the commission has made it clear that it is committed to using its subpoena power if there is a lack of, or delay in, compliance,” the statement from Angelides and Thomas said. “Failure to comply with a commission request is viewed with the utmost seriousness, as the commission will not be deterred from getting desired information.”
Because it is a bipartisan commission, the panel needed to have at least six of its 10 members sign off before issuing a subpoena. In an interview at the start of the commission's work, both Angelides and Thomas told McClatchy that they would aggressively use their subpoena powers where needed.
The subpoena adds intrigue to a much anticipated hearing scheduled for Friday, when the Senate Permanent Subcommittee on Investigations looks into the role of credit-rating agencies in the financial meltdown.
Moody’s CEO McDaniel has said little publicly about his company’s role in the crisis, as the dominant player in the rating of complex deals, called structured finance, which often netted rating agencies $1 million or more per deal.
He stands out for still having his job after a number of Wall Street financial firms have seen their executives step aside or were forced out in the aftermath of the crisis.
One explanation for his hanging on to the CEO post came Wednesday morning, when Moody’s reported strong first quarter earnings that reflected a 26 percent increase over the same three months of 2009.
However, in a statement accompanying those first-quarter results, McDaniel cautioned against forecasting a strong 2010 “due to uncertainty that (bond) issuance levels later in the year will continue to overcome weakness in some areas of structured finance.”
Revenues from structured finance, mostly deals involving shaky U.S. mortgages, powered Moody’s stock from under $20 to above $72 in a period from 2002 to 2007. The company’s share price fell almost 5 percent to under $26 after the subpoena announcement.