Questionable financial protagonist Moody’s is once again in the cross-hairs, only this time, the antagonist comes with an Italian name, Michele Ruggiero. The conflict? Market manipulation.
In spring of this year, Greece’s economy hit rock bottom, striking fear in the hearts of euro investors who were primed to react irrationally at the slightest news of doom.
On 6 May 2010 at 11:15am, Moody’s circulated a report that rated the Italian banking and economic systems to be “at risk”. In a matter of hours the value of the Italian financial market turned into a figurative picture of a Christmas tree after New Years: thrown to the sidewalk with only a few remnants of cheap tinsel hanging off a deadened pine needle. Unlike the unfortunate tree however, the walk of shame only lasted for one day. Prime minister and part-time political scandal spotlight-stealer Silvio Berlusconi, who interestingly holds the opinion for rating agencies that much of the Italian public holds of him – lost credibility – came to the rescue, stating that the “Italian public accounts are solid [and] the country is not at risk”. Other powerful figures in politics, finance and the banking industry also intervened to debunk Moody’s claims and sustain that Italy was not at risk of default. Fitch, another international rating agency, affirmed the same and the next day Moody’s decided to change its position.
Nevertheless, the misleading information and resulting freefall, however brief, prompted the main consumer associations of Adusbef and Federconsumatori to file a complaint with the prosecutor’s office of Trani. Carlo Maria Capristo, head of the office, passed the case to Michele Ruggiero, the deputy public prosecutor who was already investigating charges against American Express regarding a fraud scandal involving revolving credit cards. Ruggiero was also part of the prosecution team investigating allegations of pressure from Berlusconi on Agcom, the Italian Communications Authority, to shut down Annozero, a political talk show whose guests frequently roast the prime minister.
At the center of the market rigging investigation is Ross Abercromby, the senior analyst who backed the statements made by Moody’s in its report. Abercromby has been issued a cautionary warrant by the prosecutor’s office of Treni; charges include manipulation of the finance market and disclosure of false information, among others. The prosecution is looking for evidence that Moody’s engaged in market rigging at the cost of investors by issuing the detrimental report that resulted in a severe alteration in the value of Italian securities. If found guilty, Moody’s could be forced to make retribution payments.
This is not the first time Moody’s has come under scrutiny. The first drama happened in 1976 when Moody’s dropped the rating of NYC MAC bonds from A to B after the state of New York had issued a moratorium on payment of principal for city notes that were outstanding, causing a huge drop in the sale of bonds and prompting allegations against Moody’s of political bias as reasons for the rating drop. In 2007 Moody’s, along with Standard and Poor’s and Fitch, came under fire for failing to predict the housing bubble crash, allowing the bubble to grow to the size it did and failing to properly adjust its ratings until the last minute when it was already too late for many investors. In April of this year Moody’s was issued a subpoena from the Financial Crisis Inquiry Commission for its role in assigning misleading credit ratings for toxic assets, which ultimately helped to contribute to the financial crisis of 2008.
Whether or not Moody’s did intentionally manipulate the market or whether they simply made an overly negative judgment call remains to be seen. Italy, like the rest of the world, has had its struggles since the 2008 global financial disaster. It has certainly seemed to hold its own in comparison to Greece, Portugal and Ireland as of late, although last month, Citi economist Willem Buiter cited his pessimism for the future of Italy’s risk ratings as a result of continued political instability and high debt levels. The recent Parisian-worthy mob riot in Piazza del Popolo in Rome after Berlusconi won the confidence vote by 314 to 311, in addition to the many student riots (see photos) that have taken place throughout Italy in response to University reforms, can attest to a severely divided government and angry citizens, two things that can certainly give investors reason to shudder.
Nevertheless, risk or no risk, one thing is sure; Italy will not be devaluated without a fight!
Nina Michael is in her junior year in the BS in Business program at CUNY School of Professional Studies. Nina has been all over the world and loves traveling; she currently lives between Italy and New York where she works as a professional English teacher and translator. She loves languages, food, coffee, wine and a good book; she is also a first-rate bartender.