The U.S. Securities and Exchange Commission didn't return the calls of an ex-Moody's Investors Service analyst after he contacted regulators to tell them he believed the ratings agency was inflating its ratings of complex securities, according to a memo for Republican House lawmakers reviewed by Dow Jones Newswires.

The former Moody's employee, Eric Kolchinsky, was finally contacted by the SEC, but only after he went public with his allegations last week, he testified Wednesday during a hearing on rating agencies before the House Oversight Committee. Separately, the chairman of the House Oversight Committee also raised concerns Wednesday that the SEC has not been prompt in responding to other concerns raised by a second ex-Moody's employee, Scott McCleskey, who also testified about problems at the company Wednesday.

McCleskey, a former Moody's compliance officer, sent a letter to the SEC in March that said that Moody's had not kept pace with updating municipal ratings and also 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 forced out by the company in 2008.

"I am concerned by the Securities and Exchange Commission's inaction after receiving Mr. McCleskey's letter containing serious allegations of wrongdoing at Moody's," House Oversight Chairman Edolphus Towns, D-N.Y., said. "Mr. McCleskey's allegations indicate troubling behavior that requires oversight by the Securities and Exchange Commission. There can be no place for complacency in our financial regulators."

Republicans appeared equally concerned about what they saw as a failure on the SEC's part to look into Kolchinsky's allegations about Moody's as well.

The SEC's failure to return Kolchinsky's calls "is unfortunately not surprising given the SEC's failure to respond to concerns raised about the Madoff Ponzi scheme," the Republican memo says. "It also raises serious questions about the wisdom of current Democrat proposals to entrust the SEC with increased regulatory authority" over credit-rating agencies.

The SEC declined immediate comment, but a spokesman said the agency has "established an examination program for credit-rating agencies" and is "focusing carefully on the tips and complaints" it receives and "following up, where appropriate."

Kolchinsky on Wednesday discussed what he believes are continuing problems with conflicts of interest and inflated ratings. As his primary example, Kolchinsky said Moody's gave a high rating to complicated debt securities in January 2009, knowing that it was planning to downgrade assets that backed the securities. Within months, the securities were put on review for downgrade. He said he had reviewed internal Moody's memos that showed executives had approved ratings methodology changes in December 2008 that they expected to lead to large-scale ratings downgrades.

Moody's Chief Risk Officer Richard Cantor on Wednesday testified that the company has hired an outside law firm to investigate Kolchinsky's claims.

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. Moody's Investors Service is a unit of Moody's Corp. (MCO).

Meanwhile, at a hearing later Wednesday before the House Financial Services Committee, the heads of Moody's, Standard & Poor's, and Fitch Ratings will testify about a new U.S. House proposal drafted by Capital Markets Subcommittee Chairman Paul Kanjorski, D-Pa.

That bill goes further than the Obama administration proposal by imposing stronger legal liability standards on credit raters to hold them more accountable for the accuracy of their ratings.

It would change the pleading standards in private securities litigation cases to make it easier for investors to sue. It would also empower the SEC to take civil action against raters. But perhaps the most controversial provision entails the creation of a collective liability regime that would force nationally designated firms to be held responsible for each other's actions in an effort to get them to better police one another.

All three of the companies are planning to criticize that section of the bill, saying it would be harmful and unfair to the industry.

- By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com