Moody's: Kolchinsky's Latest Complaints Are Unsupported
01 October 2009 - 1:48AM
Dow Jones News
A law firm hired to investigate the most recent claims by an
ex-Moody's analyst that the company continues to inflate its
ratings has preliminarily concluded those allegations are
unfounded, a top Moody's executive told a U.S. House panel
Wednesday.
Richard Cantor, the chief credit officer at Moody's Investors
Service, told the U.S. House Oversight Committee that Moody's hired
the law firm Kramer Levin to investigate former employee Eric
Kolchinsky's complaints about the ratings firm, a unit of Moody's
Corp. (MCO).
Its preliminary findings, Cantor said, "are consistent with
Moody's internal review - that the claims of misconduct are
unsupported." He added that the issues Kolchinsky raised are "of
longstanding and healthy debate" within Moody's.
Kolchinksy was suspended on Sept. 3 after he declined a request
from a Moody's human-resources officer to meet with an external
lawyer. He said in an interview earlier this month that he had
spoken to the lawyer on the phone a few days earlier but declined
the face-to-face meeting because he wanted his own attorney to be
present and was notified of the Sept. 3 meeting only minutes in
advance.
Cantor added that the law firm hired was given "unfettered
access" to Moody's records.
"Moody's didn't direct the investigation," he said, adding that
the law firm interviewed 22 Moody's employees. "The only person who
refused to meet" with the law firm was Kolchinsky, he said.
House Oversight Chairman Edolphus Towns, D-N.Y., told Cantor he
wants Moody's to turn over all the documents from the law firm's
investigation. Cantor responded that he will pass along the request
to Moody's lawyers and he is "confident they will be able to
comply."
Kolchinksky and a former Moody's compliance officer, Scott
McCleskey, testified the U.S. House Oversight Committee Wednesday
about what they believe are continuing failures at Moody's in how
it conducts and monitors its ratings.
McCleskey's testimony centered around issues he raised to the
SEC in March about how Moody's replaced several compliance officers
in 2008 with analysts and managers who were previously involved in
rating structured-finance and mortgage securities. He said he was
"pushed out" by Moody's in September last year after being
replaced.
Kolchinsky, meanwhile, discussed what he believes are continuing
problems with conflicts of interest and inflated ratings.
- By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com
(Serena Ng contributed to this article.)