Former manager sues Moody’s for billions

Some investors in Wisconsin might not know that a man who used to be a manager for Moody’s Investors Service filed a qui tam complaint against the company after he was fired for blowing the whistle on its practices. The filing was submitted and sealed on Feb. 24, 2012, but after the U.S. government decided not to intervene, the complaint was unsealed on May 30.

According to the complaint, Moody’s cost the federal government billions when it untruthfully evaluated collateralized debt obligations and thousands of residential mortgage-backed securities prior to the economic downturn. Most of those securities were issued AAA or similar positive ratings without carrying out objective, independent calculations. Instead, the company issued the ratings based on its profit-maximization policies and conflicts of interest. Moody’s is also accused of concealing the basis of the ratings from the Securities and Exchange Commission.

The former manager says that Moody’s continued this practice as defaults and delinquencies alarmingly increased. It did not begin to backtrack on the ratings until October 2007, downgrading its ratings when the economic downturn started. The man says that he wrote to his superiors about the illegal and unethical conduct and was later fired. The former employee is seeking damages under the False Claims Act and disgorgement of unjust profits.

Under the FCA, a private person can file a qui tam claim, which means that the suit is filed on behalf of the government. If the government does not intervene, the plaintiff could pursue the action and may receive 25 to 30 percent of the recovered amount if the action is successful. The person might also receive reimbursement for legal costs and other expenses from the defendant.

Source: U.S. Department of Justice, ‘The False Claims Act: A Primer

Source: Courthouse News Service, “Whistle-Blower Seeks Billions From Moody’s“, August 21, 2014

Source: Courthouse News Service, “Whistle-Blower Seeks Billions From Moody’s“, August 21, 2014

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