Moody's (MCO) Investors Service Initiates Employee Disciplinary Proceedings Following Review of Ratings Process for European CPDOs

July 1, 2008 9:07 AM EDT

Moody's Investors Service, the credit rating agency unit of Moody's Corporation (NYSE: MCO), today announced that, following a comprehensive review of its ratings process for European constant-proportion debt obligations, it has initiated employee disciplinary proceedings and accelerated measures to strengthen its rating and monitoring processes.

Moody's found that its personnel did not make changes to the methodology for rating European CPDOs to mask any model error. Moody's, however, has concluded that members of a European CPDO monitoring committee engaged in conduct contrary to Moody's Code of Professional Conduct. Specifically, some committee members considered factors inappropriate to the rating process when reviewing CPDO ratings following the discovery of the model error.

As part of its broader ratings quality and disclosure initiatives and in response to this incident, Moody's has introduced or enhanced its actions in five broad areas:

1. Disciplinary proceedings: Moody's has initiated disciplinary proceedings against certain employees who were involved in the CPDO monitoring process and its supervision.
   
2. Existing CPDO ratings: To confirm the integrity of existing CPDO ratings, the company has conducted a review of all outstanding static CPDOs, including the seven affected by the model error. Moody's is also reviewing ratings of certain other structured finance securities in which employees subject to the disciplinary process participated substantively. To date, the review effort has found no indications that the rating process for those securities violated Moody's Code
   
3. Review of analytical models and methodologies: Moody's is taking additional steps to enhance the independence of model verification and methodology review.
   
4. Monitoring of structured finance ratings: As previously announced, Moody's has enhanced resources devoted to an independent surveillance of its structured finance ratings. This effort will be fully implemented by the end of 2008 and will unify leadership and accountability for monitoring.
   
5. Global compliance: Moody's also is continuing its build-out of the global compliance function to improve training and bolster monitoring of adherence to policies.

Moody's Corporation, through its subsidiaries, provides credit ratings and related research, data, and analytical tools; quantitative credit risk measures, risk scoring software, and credit portfolio management solutions; and fixed income pricing data and valuation models principally in the United States and Europe.

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