Connecticut antitrust probe focuses on debt-rating firms

Connecticut’s attorney general said Friday that he had subpoenaed the nation’s three largest debt-rating companies as part of an investigation into possible anti-competitive practices.

Atty. Gen. Richard Blumenthal confirmed that his office issued subpoenas Oct. 10 to Standard & Poor’s, Moody’s Investor Services and Fitch Ratings Service.

The investigation focuses on whether the credit-rating firms are using their dominant position to unfairly raise prices or exclude competitors in violation of Connecticut’s antitrust laws, he said.

“Assuring debt ratings are honest and untainted is vital to investors, companies and government,” Blumenthal said.

Standard & Poor’s referred questions to its parent company, McGraw-Hill Cos., which disclosed the subpoena in its third-quarter report filed with the Securities and Exchange Commission.

“As stated in our 10Q filing, S&P; received the subpoena on Oct. 16, and we are responding,” said Frank Briamonte, a spokesman for McGraw-Hill.

Messages seeking comment were left with Fitch and Moody’s.

Blumenthal said his office was reviewing allegations that some companies rated an issuer’s debt against its wishes, then ordered the issuer to pay for the service or face a possible poor rating.

His office also is reviewing whether some credit-rating firms pressured issuers into exclusive contracts under threat of a downgrade and whether contracts that offer a discount in return for exclusivity violated Connecticut’s antitrust laws by locking out other debt raters.

Credit-rating company executives testified on Capitol Hill last month about the role their agencies played in the sub-prime mortgage industry’s implosion last summer and whether they were affected by conflicts of interest.

Critics have said the rating firms failed to warn investors of the risks associated with complex mortgage-backed securities, especially those with loans to borrowers with weak credit histories.

Many of those investments have plummeted in value this year.

Blumenthal said Connecticut’s investigation was broader in scope than the rating firms’ actions in connection with sub-prime industry woes.

“The sub-prime loans certainly are a very significant element of the debt that is involved in our investigation that may be rated by these agencies but certainly not the only reason for our investigation,” the attorney general said.