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Italy files charges against credit raters

Prosecutors from the South of Italy have requested that seven officials from two of the world’s biggest credit rating agencies stand trial for potentially playing a role in a market-rigging investigation being conducted by Italian tax police.

The two agencies in question are Standard and Poor (S&P), and Fitch. Allegations against two officials from rival agency Moody’s were dropped after that company had been targeted earlier on in the investigation.

“We have filed charges against Standard & Poor’s and Fitch,” confirmed Michele Ruggiero, Prosecutor of the town of Trani in Southern Italy. Police in Trani dropped allegations against two employees of the Moody’s agency which had been previously the subject of an investigation, he added.

The magistrates are investigating the agencies for alleged market manipulation and the possible abuse of privileged information over a raft of ratings cuts that have implemented onto debt-ridden Italy since 2011.

The case was launched last year after prosecutors received complaints from two consumer groups against Moody’s. They claim that reports on the health of the Italian banking system were leaked at least once during market hours, resulting in steep losses on the Milanese stock market.

At the beginning of the year Fitch downgraded Italy to A- from A+, citing financial weakness during the debt crisis, while S&P slashed the country’s rating by two positions. In July Moody’s downgraded Italy’s sovereign credit rating by two notches to Baa2 from A3. Investigators have since focussed on more recent rating actions, particularly last year when market turmoil pushed Italy to the brink of bankruptcy and helped precipitate the downfall of Silvio Berlusconi.

Credit agencies have received a lot of flak over the past three years with many economists criticising them for not predicting the mortgage debt crisis of 2008-2009. EU policy makers complained that the bodies had been too quick in slashing struggling nation’s credit ratings despite the implementation of bailouts and budget reforms. They say that the ratings cuts have led to an exacerbation of the Euro crisis.

The investigation into Moody’s has been completed with no charged filed, the prosecutor said, whilst both S&P and Fitch both deny any wrongdoing.

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