It was the first time the Securities and Exchange Commission brought charges involving deficient ratings symbols, the agency said.
It also comes nearly 10 years after the global financial crisis, in which improper ratings of mortgage-backed securities (MBS) played a starring role.
Investors rely on such ratings to assess the creditworthiness of loans backing some derivative securities.
The SEC said Moody’s failed to establish and enforce proper internal controls for the models used to assign a rating to residential MBS between 2010 and 2013.
As a result, the agency, one of the largest in the United States, corrected more than 650 ratings of the securities valued at more than $49 billion, according to the SEC.
In 54 cases, Moody’s assigned ratings that differed from what its own models suggested, but kept no record of the reasons for the discrepancies, the commission said.
In addition, $1.3 million of the $16 million fine was linked to 26 ratings of securities called “combo notes” valued at about $2 billion in a manner the SEC said was inconsistent with other securities using the same ratings symbols.
The SEC warned Moody’s about its internal controls yet the agency “did not develop an effective process to ensure the accuracy of the models it relied upon” for ratings, Antonia Chion, the SEC’s associate director of enforcement, said in a statement.
Moody’s neither admitted nor denied wrongdoing.
A congressionally mandated inquiry in 2011 said that ratings agencies had played an “essential” role in fomenting the 2008 financial meltdown on Wall Street — and accused Moody’s in particular of internal “breakdowns” in which the company systematically gave its highest rating to toxic assets that later crashed. DM
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