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Brown pursues Moody's

State attorney general wants the rating firm to answer a subpoena on the housing crash.

April 20, 2010|Tiffany Hsu

California Atty. Gen. Jerry Brown said Monday that he was seeking a court order to force Moody's Investors Service to comply with a subpoena, claiming that the credit rating company was withholding evidence of its role in the housing meltdown and recession.

The subpoena from September is part of an investigation into why Moody's gave glowing ratings to shaky securities backed by subprime mortgages.

But Brown accused the firm's lawyers of stonewalling and said that in conversations with his office they had called the subpoena "a waste of time." Brown said the lawyers had refused to provide "complete responses" to questions.

In a fiery news conference Monday, the attorney general accused Moody's of "immaculate deception," saying that the firm had "thumbed their nose at the people of California" while trying to cover up "behavior that was completely unethical and in many cases illegal."

"If Moody's has nothing to hide, then why are they hiding?" said Brown, a gubernatorial candidate this year. "Come out from your legal obfuscation and meet us."

Michael Adler, a spokesman for New York-based Moody's, said the company had worked with Brown's office for months and was "committed to continuing to do so."

"Moody's has already provided tens of thousands of pages of documents in response to his requests, and is continuing to provide additional materials," Adler said. "We will maintain our ongoing dialogue with the attorney general to resolve the concerns he raised."

In court documents, Moody's complained that the attorney general was asking the company "to create or generate documents that do not currently exist."

Brown said he had sent a list of 60 questions to Moody's, some asking whether the firm conspired with Wall Street companies and produced ratings that were less independent than they were made out to be.

In petitioning the court, Brown said his office was seeking a hearing date and a written order to compel Moody's to cooperate with investigators.

If Moody's continues to resist, he said, the company could be found to be in contempt.

Brown said Moody's was a "linchpin" in a chain of brokers, lenders and bankers that helped fuel the housing bubble while ignoring red flags pointing to an imploding economy.

Brown's office has been in contact with credit rating companies Fitch Inc. and Standard & Poor's, which also received subpoenas in September. The firms are at different stages in their discussions with the attorney general, but his office declined to say whether they agreed to comply with the subpoenas.

All three firms downgraded their ratings after housing prices collapsed, Brown said.

In March, Connecticut Atty. Gen. Richard Blumenthal sued Moody's and Standard & Poor's, accusing the firms of knowingly assigning false ratings.

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