Past and present Employees of Moody’s Investors Service take the stand today as the Committee on Oversight and Government Reform continues its investigation of credit rating agencies.

Scott McCleskey, a former senior vice president for compliance at Moody's, and Eric Kolchinsky, a recently suspended managing director at the rating agency, are both expected to testify Wednesday along with Moody’s current Chief Credit Officer Richard Cantor.

A memo written by Kolchinsky to his superiors at Moody’s detailed very serious allegations about Moody’s rating practices.

McCleskey, who was senior vice president for compliance at Moody’s sent a letter to the Securities and Exchange Commission (SEC) voicing concerns over the lack of meaningful surveillance of municipal securities. He alleges that at the time he headed compliance at the rating agency, there was virtually no surveillance being performed on U.S. public finance ratings.

Cantor’s testimony will explain Moody’s rating methodology. Cantor said that Moody’s has adopted a wide range of measures to enhance the quality, independence and transparency of its credit ratings. The agency has worked to strengthen the analytical quality of ratings and enhanced consistency across ratings groups. It has also looked to reinforce measures to avoid conflicts of interest.

As for the Kolchinsky allegations, Cantor said that Moody’s engaged the law firm of Kramer Levin,  a firm with no prior relationship to Moody’s, to conduct a review of the allegation and after a review counsel, found them to be unsupported.

“Moody’s has always believed that critical examination of the CRA industry and its role in the broader market is a healthy process that can encourage best practices,” Cantor said. “Many necessary actions have been taken both at the firm and industry level and policymakers at the domestic and international levels have proposed a host of constructive reform measures. Moody’s wholeheartedly supports constructive reform measures.”

Both the House and the Senate are drafting legislation to rein in these types of abusive practices by credit rating agencies. The agency has also worked towards improving transparency or ratings and the ratings process and has worked to build staff in key areas.

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