# Moody's Says Some Employees Breached Code of Conduct

#### charlesdwright

Moody's Says Some Employees Breached Code of Conduct (Update1)

By Emma Moody [?]

July 1 (Bloomberg) -- Moody's Corp. , owner of the second- largest credit-ratings company, ousted the head of its structured finance unit and said employees violated internal rules in assigning Aaa ratings to last year's worst performing securities.

Some Moody's Investors Service staff breached rules for ranking European constant proportion debt obligations, or CPDOs, the company said in a statement distributed today. In a separate release, Moody's said Noel Kirnon, who also oversaw the credit policy committee, is leaving the company.

U.S. and European regulators are tightening rules for Moody's, Standard & Poor's and Fitch Ratings. Lawmakers such as Congressman Barney Frank demanded tougher regulation, saying ratings companies misled investors by providing top rankings on subprime-related securities that lost as much as 80 percent of their value. Moody's said today that employees, not the company's practices, were to blame.

I am deeply disappointed by the conduct that occurred in this incident,'' Chief Executive Officer Raymond McDaniel said in the statement.

Moody's said on May 21 that it began a review of its CPDO ratings after a report by the Financial Times said some senior staff were aware in early 2007 of a computer error. The glitch gave the top Aaa rating to CPDOs that should have been ranked as much as four levels lower, the FT said. Moody's altered some assumptions to avoid having to assign lower grades after fixing the error, the FT said.

Moody's fell 34 cents to \$34.10 in New York Stock Exchange composite trading at 10 a.m. The stock is 25 percent since the FT report.

Sullivan & Cromwell

Moody's hired law firm Sullivan & Cromwell to conduct the review.

The firm found that Moody's personnel didn't make changes to the methodology for rating European CPDOs to mask any model error, Moody's said today. The monitoring committee did engage in conduct contrary to Moody's code of professional conduct,'' the ratings company said.

Under those guidelines, a committee may only consider credit factors relevant to the credit assessment and may not consider the potential impact on Moody's, or on an issuer, an investor or market participant,'' Moody's said.

Employees involved face disciplinary proceedings that may include termination, Moody's said.
Kirnon will leave the company July 31 and will be replaced on a temporary basis by Andrew Kimball, 58. A search for a permanent replacement is underway, Moody's said. Moody's didn't give a reason for Kirnon's departure.

Richard Cantor, 50, will take over as chief credit officer and chairman of the company's credit policy committee.

To contact the reporter on this story: Emma Moody at emoody@bloomberg.net
Last Updated: July 1, 2008 10:06 EDT

#### IlyaKEightSix

Oh joy...so now in addition to the fact that they have no understanding of the underlying securities they are rating, that this ratings agency allows deliberate misinformation to bubble up through the top and make it out into the world?

And we're supposed to *trust* this company?

You're kidding, right?

#### DominiConnor

Having spoken to Moody employees, and staff of other ratings agencies I can understand how this happened.
Most of you will be aware that in the Latin alphabet, the letter after "A" is "B".
If this concept is challenging to you then you either work for a ratings agency, or this is your natural mode of employment.
Why then is it a shock that they gave "AAA" ratings ?
"B" is seriously confusing to the sort of people that work for ratings outfits.

If you collect the least competent people in finance and tell them your business makes money be giving customers good ratings, then the only reason they'd ever give a non-A rating is if they pressed another letter and were outwitted by the backspace key.

Congressman Frank is sorely deluded if he thinks that there was a serious intent to be fraudluent.
Some of you wil have seen sheep. Arguably the least intelligent mammal, a creature who needs to gang up to outwit the grass it eats.
One thing you may have seen sheep do, is be made to jump over some small obstacle.
What is interesting is the way that the other sheep jump over it even after it is removed.

Some of you are stupid. Others are lazy. A few have substance abuse issues. Only when you have all three are you ready to take the test to work for a ratings agency.
The test involves hard core economics with respect to utility theory under stochastic returns.
"Do you want to be paid a small random amount of money"

If the answer to this is "yes", or "ug", a bright future in ratings awaits you.

#### IlyaKEightSix

=D>

Next time I want a laugh, I'll have to start another ratings topic on quantnet and wait for Sir Connor to reply to it. Dominic, if you don't trust ratings agencies, do you do all of your ratings by trusted quant models I take it?

#### charlesdwright

I don't think there are enough busses in the city of New York for all the employees to be thrown under.

#### DominiConnor

Many people who I respect see the ratings agencies as a major factor in the Credit Crunch.

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