More On Legal & Compliancefrom The Advisor's Professional Library
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Standard & Poor’s and Fitch Ratings are in an unusual position. Several of their representatives may be made to stand trial in Italy as prosecutors look into allegations of market manipulation and abuse of privileged information. Similar charges against Moody’s, however, which had also been a target of the investigation, have been dropped.
Reuters reported Monday that prosecutors from the southern Italian town of Trani are pursuing the action after a series of cuts in Italy’s credit ratings was made by the agencies since the spring of 2011. Five representatives from S&P and two from Fitch could find themselves on trial in the Mediterranean nation.
A court will decide whether the case will proceed. Italian police issued a statement saying that two officials from Moody’s are no longer in jeopardy of trial, since prosecutors have dropped charges against them.
Prosecutors allege that reports by both S&P and Fitch on Italy and its banking system were leaked during business hours in at least one instance. The leak is alleged to have caused the Milan stock market to record heavy losses.
Two consumer rights groups initiated the case by filing complaints last year, and Italian authorities began their investigation into the ratings downgrades.
Ratings agencies are already suffering from somewhat tarnished reputations for their failure to foresee the mortgage meltdown in 2008-2009. Should the case come to trial, arguments on both sides concerning the liability of the agencies during a period of worldwide economic turmoil will come to the fore, and the prominence of their position could be challenged.
European policymakers have already been publicly critical of the agencies’ actions in downgrading eurozone countries with heavy debt loads. They said that the agencies moved too quickly to cut ratings even as nations enacted severe fiscal policies to rein in debt and the European Union issued bailouts in efforts to combat the debt crisis in the eurozone.