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Moody’s falls on news of investigation

Associated Press / May 11, 2010

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NEW YORK — Shares of Moody’s Investors Service fell nearly 7 percent, to $21.77, following news the ratings company is being investigated for possibly misleading regulators. Moody’s disclosed Friday that it might face a Securities and Exchange Commission administrative charge it misled regulators when it applied for its license in 2007.

Ratings agencies like Moody’s and Standard & Poor’s continue to face scrutiny and criticism related to their roles in the credit crisis.

Ratings agencies have been criticized for giving certain investments top ratings, only to see those investments collapse. The investments, such as securities backed by subprime mortgages, contributed to the 2008 credit crisis and the recession.

The investigation grows out of a separate issue, Moody’s ratings of European investments. In 2008, Moody’s acknowledged a computer error led to incorrect ratings on 11 fixed-income investments worth $1 billion. Moody’s also said employees failed to fix the errors immediately after discovering them. The SEC said Moody’s might have provided false statements in its license application based on the erroneous ratings.

Moody’s said its license application was accurate.