Prosecutors in Italy are attempting to take seven workers from Standard & Poor’s and Fitch rating agencies to trial for “alleged market manipulation and abuse of privileged information.” The Italian magistrates have yet to rule on whether the case can move forward. If it does, this could have an effect on the way that rating agencies act, and what duties they, as private entities, owe to the governments they express credit-worthiness about.
Credit agencies have been coming under attack recently for actions they have taken before and after the financial meltdown. Last year, when the United States lost its AAA rating, the Obama administration was quick in its attempt to discredit the reliability of the methods Standard & Poor’s used in determining its ratings. European policymakers have also complained that the European Union did not deserve the downgrades that it received, and former Italian Prime Minister Silvio Berlusconi has spoken out against a “political agenda” behind the rating agencies’ motives.
It is reasonable to become upset with rating agencies and to speak out against them. But ultimately, people must take responsibility for their own reliance on the ratings that credit rating agencies give. The disclaimer of Standard & Poor’s does a good job of summing up its position in the world of finance:
Any credit-related analyses, including ratings, or statements used in any of the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions…. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions.
If the Italian courts decide to hear this case, it would not be the first of its kind. Indeed, an Australian court recently ruled that Standard & Poor’s misled investors by giving good ratings to bonds that ultimately failed in the fiscal meltdown.
But it must be recognized that to take legal action against credit rating agencies is entirely different than merely expressing an opinion about the soundness of their judgments. Allowing this Italian court proceeding to move forward would effectively pronounce that in the future credit rating agencies could owe a higher duty to investors and to the entities that they rate. This could change the relationship that credit rating agencies have to the governments they rate, and ultimately compromise the independent judgment that they are able to offer. It remains to be seen whether the Italian courts will allow this to happen.
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