WASHINGTON — Representatives of the three major credit rating agencies said Tuesday they do not know of any rating analysts who were treated to expensive dinners, Broadway shows or sporting events by broker-dealers to obtain favorable muni ratings. All said they are unaware of any regulatory investigations of such alleged conduct.
Each said that their firms have strict policies against rating analysts receiving gifts or entertainment.
Their remarks come after Rick Ketchum, chairman and chief executive officer of the Financial Industry Regulatory Authority, said during a fixed-income conference in New York City Monday that FINRA is “investigating excessive entertainment of rating agency officials, activity that presumably represents efforts to favorably influence the rating of municipal securities issues.”
The Securities and Exchange Commission in 2009 settled cases with two firms for excessive entertainment of issuers and their family members that occurred at the time they met with rating agency officials in New York City, but those cases make no mention of the firms entertaining rating analysts.
The cases involved conduct that dated back to the first half of the last decade and included tickets for Broadway shows, sporting events, and expensive meals for issuers and family members that extended well past their meetings with rating agencies.
In the first case, the SEC fined RBC Capital Markets Corp. $125,000 for using bond proceeds to reimburse itself for treating city officials from Mesquite, Tex. — along with their spouses, children, and grandchildren — to lavish meals, car services, and entertainment in trips to New York City to meet with rating agencies in 2004 and 2005.
In the second one, the SEC fined Birmingham, Ala.-based Merchant Capital LLC $55,000 for using bond proceeds to treat issuer officials, family members and friends to upscale restaurants and Broadway shows during five trips to New York from June 2003 through May 2005.
Michael Adler, vice president of corporate communications at Moody’s Investors Service, said, “While we are not aware of this investigation, Moody’s has implemented strict policies for our analysts that reinforce [Securities and Exchange Commission] rules , which clearly prohibit the type of conduct alleged.”
Chris Atkins, a vice president of communications at Standard & Poor’s, said, “We have a code of conduct that explicitly prohibits our analysts from soliciting or accepting gifts or entertainment.”
Daniel Noonan, a managing director of corporate communications for Fitch Ratings, said, “Our policy explicitly prohibits analysts from accepting entertainment or gifts from issuers or bankers.”
Municipal Securities Rulemaking Board officials also expressed surprise at the alleged conduct, but said they are not always aware of what FINRA is doing.
