The Securities and Exchange Commission is launching a preliminary examination into whether an Standard & Poor’s employees insider traded ahead of the downgrade, according to a report in the Financial Times.
The SEC has requested S&P disclose a list of all employees who were made aware of the ratings agency’s plans to downgrade before it was made public last week, the FT said.
If someone from the S&P did in fact leak information, the agency, not just the individual, could be in serious trouble because of a little-known law from 2006.
“At issue, in part, is a 2006 statute — the Credit Rating Agency Reform Act — that says a credit rating agency could have its licence registration revoked if it leaked information about its pending downgrade decision before making that information publicly available. It also said that the rater must have policies and procedures to prevent such a disclosure.”
However, proving that someone within the agency insider traded or leaked information ahead of the downgrade would be difficult, the FT reported. That’s because many traders were already anticipating the downgrade and bets occur across many different securities.
U.S. stocks suffered their worst losses Monday since December 2008 as investors reacted to the S&P’s historical downgrade of the U.S. government’s credit rating from AAA to AA-plus.
This isn’t the first time a government body has probed the downgrade; The Senate Banking Committee is already preparing for a possible investigation into S&P downgrade of U.S. government’s credit rating, according to a committee aide.