Moody's (NYSE:MCO) revealed that it received a Wells Notice from the SEC in a filing Friday.
That's not all that unusual.
What's unusual is that it received the Wells Notice in March.
In July 2008, Moody's acknowledged that it had an error in the way it rated constant proportion debt obligations, or CPDOs, that would have lowered AAA ratings given to the 11 CPDOs to AA territory--or a reduction of one to three notches. But this didn't take into account "qualitative factors" that Moody's committees also consider in the firm's ratings.
Moody's found that some members of its CPDO monitoring committee in Europe considered factors other than credit--namely whether changing the rating would be embarrassing to Moody's or affect another market participant.
Ok, that looks material.
So why disclose it now, when the notice was received in March?
Well, let's see - does it take a couple of months to file a Form 8-K? I don't think so.
Does it take a while to read the Wells Notice and recognize that it's an official document? Again, I don't think so.
But what else do we know about Moody's - and Berkshire (BRK.A), to be specific?
Well, we know that Berkshire sold a bunch of Moody's stock - in March. $6.2 million worth, to be exact. Now let's be clear, before someone goes nuts - Berkshire has been selling its stake in Moody's for a while, and for what I'd call good reason.
To cloud the issue further, supposedly Berkshire is a "hands-off" investor in Moody's, yet McClatchy reported the following about the MBS blowup and their ratings on same:
McClatchy also has learned that during this time, as concerns grew about the ratings of complex mortgage-backed securities, two Moody's executives reached out to the company's largest shareholder, Buffett, to warn him of problems.
From this we can surmise that there is some communication between the firms - it's not a totally-passive, "we're just shareholders and we'll vote at the annual meeting" thing, right?
So here's the obvious question that arises, given the curious timing of events: Did Berkshire know about the undisclosed Wells Notice when it sold its shares? That is, was Berkshire in possession of material inside information at the time of the sale?
I think that's a question we should have an answer to, along with exactly why Moody's decided to disclose this now, and not in March when it got the notice in the first place.
It's just a question.