The top ratings its analysts gave to complex, risky bonds, allowed them to be sold into the marketplace, caused losses throughout the financial system too large to count.
In one instance, the ratings agency gave triple-A ratings to billions of dollars' worth of bonds that should have been four notches lower due to a computer glitch. Still, upon finding out about the glitch in early 2007, Moody's kept the ratings in place until January 2008, the Financial Times reported. Moody's eventually acknowledged the error and disciplined certain employees.
Lawsuits followed, but so far they haven't made much of a dent in Moody's share price. There was the Public Employees' Retirement Systems of Mississippi, for example, which argued in 2008 that Moody's was responsible for duping them into buying $63 billion of investment-grade mortgage-backed securities. Moody's got the case thrown out, however, since the plaintiffs claimed Moody's effectively acted as an underwriter of the bonds. But even Judge Jed Rakoff, about as sympathetic a judge as the plaintiffs could have hoped for, concluded that argument didn't fly.The plaintiffs had to take that tack because Moody's has hid behind the first amendment, successfully claiming its ratings opinions are protected as journalism.