Date
19 October 2017
The tribunal said Moody’s breached the securities regulator's code of conduct but didn't act dishonestly. Photo: Bloomberg
The tribunal said Moody’s breached the securities regulator's code of conduct but didn't act dishonestly. Photo: Bloomberg

HK tribunal partially upholds action against Moody’s

A Hong Kong tribunal said Moody’s Investors Service must pay HK$11 million (US$1.4 million) for errors made in a July 2011 report that highlighted “red flags” at certain Chinese companies.

The Securities and Futures Appeals Tribunal upheld parts of a 2014 disciplinary action taken by the Securities and Futures Commission against Moody’s, which it fined US$3 million.

The tribunal said the ratings agency breached the Hong Kong securities regulator’s code of conduct but didn’t act dishonestly, the Wall Street Journal reported.

The SFC previously said Moody’s committed “mathematical” and “input” errors in a 2011 report that outlined weak corporate governance and accounting practices at certain Chinese firms.

Shares and bond prices at those companies tumbled even as some disputed the allegations.

“Moody’s appreciates the reduction in the fine, however we didn’t engage in misleading conduct and we disagree that the SFC should be able to regulate the content of research publications,” a Moody’s spokesman said in an email.

Moody’s said it is considering its options.

The ratings agency didn’t contest the errors but said they had a limited impact on the overall accuracy of the report.

It said the report wasn’t an official credit-ratings action and therefore outside the SFC’s purview.

In its ruling on Thursday, the tribunal said the publication of the report was a “regulated activity” but didn’t find that Moody’s had acted dishonestly.

While reducing the fine to reduced its fine by US$1.6 million, the tribunal ordered Moody’s to pay 60 percent of the SFC’s legal expenses.

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RA/CG

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