That Moody’s Investigation in Fool I, II

Sullivan & Cromwell might have pulled a Big Brown on the field for the 2008 Conflicted Bastards (Legal Profession) Stakes, with its retention by Moody’s (MCO) Investor Services in re: The Great CPDO Ratting Debacle. The press release:

NEW YORK, May 21, 2008 (BUSINESS WIRE)—Moody’s recognizes the seriousness of questions raised by today's Financial Times article concerning the analytical models and methodologies used in our European constant-proportion debt obligation [CPDO] ratings process. The integrity of our ratings and rating methodologies is extremely important [Is this correct? —Ed]; as such, when the questions were recently raised to us, we retained the law firm of Sullivan & Cromwell and initiated a thorough external review of our European CPDO ratings process. Upon completion of the review, we will promptly take any appropriate actions.

So let’s canter over to Sullivan & Cromwell’s website, where we quickly turn to the bottom of page 10 of Rodgin Cohen’s “overview of our significant assignments during 2007.”

Our firm is representing a number of financial institutions and other clients in matters arising out of the subprime lending crisis, including many non-public investigations of events in the subprime securitization market. We also represent clients in several civil lawsuits relating to subprime lending, including Moody’s Investors Service Inc in putative class actions brought by Moody’s stockholders claiming that Moody’s and several of its executives violated federal securities law by failing to disclose that the agency’s subprime ratings were allegedly inflated; and officers and directors of JPMorgan Chase (JPM) named in derivative litigation relating to subprime assets. [Emphasis added].

Any guesses as to how that “external” investigation is going to work out? Rodgin? Rodgin?

We are honored that our clients entrust Sullivan & Cromwell with their most strategic and critical matters and seek our advice in this challenging and dynamic global economic environment. Our commitment to helping our clients around the world identify and capitalize on opportunities and manage risk has led our firm and our lawyers to continue the tradition of excellence and innovation that long has been the hallmark of its success.

While the auld firm of Thain, Pandit, Blankfein & Fuld debate whether the credit crisis is in its seventh or eighth inning, NakedShorts would suggest an alternative analogy: we’ve done the crime, here comes the cover-up.

Sullivan & Cromwell LLP: 2007 Review
May 12 2008

Moody's Confirms External Review of European CPDO Rating Process
Press release
May 21 2008

And in one of the least surprising developments in recent financial history, Christopher “Flaccid” Cox, the mutual fund fraud enabler currently masquerading as the chairman of the US Securities and Exchange Commission, is already in on the fast-developing cover-up of the Moody’s misratting scandal.

Cox said earlier that because the CPDOs ratings were given out by Moody's in Europe the SEC may lack jurisdiction.

SEC Should Investigate Moody's, Consider Fines, Schumer Says
by Jesse Westbrook
Bloomberg May 21 2008

Regrettably for Mr Cox and his endless quest to ensure that nobody turns over any rocks that may conceal reptilian threats to market confidence, NakedShorts’ correspondent David S. Products has produced an email from Oct. 2006 showing that at least one of the deals was, in fact, offered in the US. Which would, to the extent that Cox has not already gutted his agency’s alleged mission, bring the matter under SEC jurisdiction.

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Subject: ABN AMRO - SURF 2006-1 CPDO: AAA Rated Asset at Libor + 200 Bps

It was nice speaking with you and [Redacted] this afternoon. As promised, I will follow up with you regarding [Redacted]’s visit later this month once we know his schedule.

In the meantime, as mentioned, ABN AMRO is pleased to present the SURF 2006-1 CPDO, the first fully-rated Constant Proportion Debt Obligation in the US. I believe you will find this opportunity very interesting. Key features include:

• AAA rating by Standard & Poor’s and Moodys on both the timely payment of interest and the ultimate payment of principal.
• Coupon of L + 200 bps...
• Leveraged credit exposure to an investment grade portfolio of two on-the-run credit indexes (the reference pool is 50% Dow Jones CDX.IG and 50% iTraxx Europe).
• Transparent structure that combines features of CPPI and CDO transactions.
• Daily two-way pricing provided by ABN AMRO via Bloomberg.

For your review, I am attaching the following documents:

The SURF structure pitchbook

A recent article from The Financial Times

The S&P Presale report

I look forward to following up with you later this week. In the meantime, please feel free to call me with any questions or comments...

Comments

[Chuck]

They never get hung for the actual event, but get nailed in the attempt to cover it up.
Bill Clinton, Elliot Spitzer, Larry Craig, Tom DeLay, Vittner, etc.. etc..