In divorce when you have a bad prenuptial, you end up in never ending Court battles that you never expected, especially if your spouse learns of things that should have never seen the light of day. Well, as the credit agencies are learning it’s the same thing with State regulators. According to public reports New York Attorney General Eric Schneiderman has issued several Martin Act subpoenas to all the major credit agencies. Although he apparently is restricted in his ability to pursue these agencies due to an agreement former Attorney General Cuomo made, I believe he will find a way around that agreement which ended in 2011 and will in fact pursue them and obtain significant settlements down the road.
As a former Assistant Attorney General in the N.Y. Attorney General’s Office of Investor Protection and Financial Crimes, under both Eliot Spitzer and his predecessor, I know that office does not issue such high profile Martin Act subpoenas without careful consideration. The New York Attorney General’s office does not like to take deference to Federal authorities when it comes to its securities division and I have no doubt that this will not be an exception. The Martin Act subpoenas, which is a very powerful statute as the State does not have to prove intent, would not have been issued unless that office was confident that they can circumvent any prior agreement that was in place.
With the emails that have already been released, including credit agency employees puportedly partying to the song “burning down the house” as they issue high credit reports to junk, it is not surprising that the State Attorney General is itching to spoil the feds party. Where there are a few emails there are typically many and those Martin Act subpoena responses should be pretty interesting.
If I were the rating agencies, or their shareholders, I would be pretty concerned about the issuance of those new subpoenas and what it will cost those agencies down the road in settlements. If I’m correct, their attorneys did a poor job representing them before my former office which is not surprising. In my experience large corporations and the large law firm’s which they tend to retain never take State regulators seriously, and they do so to their own eventual detriment.
Next time, maybe the credit agencies should hire an attorney who know their way around the State, and not just the halls of the SEC and US Attorneys Offices. As most insiders know, they are different animals and they live to compete with each other.
In any event, looks like ground zero of the 2008 massive credit crises is finally the focus of attention. It will be interesting to see how this plays out.