DIGEST

Business Digest: SEC targets credit-rating agencies' role in financial crisis

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Thursday, December 10, 2009

REGULATORS

SEC probes rating agencies' grading practices

Federal law enforcement officials said they are looking into whether the nation's credit-rating agencies broke the law in the years leading up to the financial crisis when they gave high grades to many of the toxic securities that doomed the financial system, but cautioned that providing illegality would be difficult.

At a Senate Judiciary Committee hearing on financial fraud, Securities and Exchange Commission enforcement director Robert Khuzami said "we are looking very closely at credit rating agencies," but he noted that it may be difficult to prove fraud.

"While it's clear the agency might have gotten things very wrong, . . . a fraud 'knowledge and intent' standard can be difficult," Khuzami said.

Khuzami said his agency is specifically looking at potential conflicts of interest between credit raters and the banks that paid for securities to be rated.

Assistant Attorney General Lanny Breuer said the Justice Department is also probing the credit-rating agencies, but warned that "rating agencies themselves have always had a First Amendment privilege in their ratings and they've claimed that."

-- Zachary A. Goldfarb

ECONOMY

Wholesale inventories start to rise again

U.S. wholesalers started restocking in October for the first time in more than a year, suggesting that the economy could get a lift as a long-running effort by businesses to pare inventories reaches an end.


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