More On Legal & Compliancefrom The Advisor's Professional Library
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
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.