US authorities are investigating Moody’s Investors Service for issuing rosy grades on mortgage deals in the buildup to the financial crisis, the Wall Street Journal reported over the weekend.
The probe by the Justice Department is still in the early stage and it isn’t clear if it will result in a lawsuit, sources were quoted as saying.
Officials, in recent meetings, have pressed former Moody’s executives on whether the firm compromised standards to win business, the report said. The main focus has been on residential-mortgage deals from around 2004 to 2007.
The probe of Moody’s comes as the Justice Department nears a settlement with Standard & Poor’s Ratings Services, another credit ratings agency, over similar conduct, the report said.
Moody’s and S&P gave triple-A ratings to mortgage deals, which prompted even conservative investors to buy securities backed by subprime loans that later turned out to be risky.
When the housing market collapsed, losses on those bonds spread everywhere and deepened the crisis, costing investors billions of dollars, the Journal noted.
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