Whistleblower Says Moody’s Smeared Him

MANHATTAN (CN) – A former managing director claims Moody’s defamed him when he was asked to testify to Congress about the ratings agency’s role in the subprime mortgage fiasco. Ilya Kolchinsky says he had warned the firm about its ratings of “toxic” subprime mortgage securities, but it smeared him and got him “blacklisted by the private sector financial industry” when it saw he would blow the whistle to Congress.

     Kolchinsky sued Moody’s and its CEO Raymond McDaniel in Federal Court, alleging defamation, tortious interference and intentional infliction of emotional distress.
     In mid-September 2009, Kolchinsky says, he “was invited to testify in front of the House Committee on Oversight and Government Reform (the ‘House Committee’). Prior to and following his truthful, solicited testimony before Congress, Moody’s embarked on a carefully planned media campaign to discredit Mr. Kolchinsky, and impugn his integrity, honesty, work and abilities.”
     Before Moody’s set out to smear him, Kolchinsky says, he “was highly regarded in the securities industry, with a good reputation for honesty, ability and integrity. He had never been substantially unemployed prior to the events at issue in this case, but since Moody’s defamatory statements, he has, in effect, been blacklisted by the private sector financial industry.”
     Kolchinsky claims he first became concerned about securities fraud at Moody’s in September 2007. He says his supervisors addressed the fraud after trying to ignore his complaints.
     “Nonetheless, Mr. Kolchinsky was retaliated against and removed from his position at the rating agency,” according to the complaint.
     Kolchinsky says he filed a complaint with the Moody’s compliance group about his treatment and the firm’s irresponsible policies on subprime mortgages.
     “In the summer of 2008, Mr. Kolchinsky became aware that his former group was preparing to resume rating one of the most toxic products of the recent U.S. financial crisis era – the ABS CDO,” according to the complaint. “These products were responsible for hundreds of billions of losses at financial institutions like AIG, Merrill Lynch and Citigroup.”
     Despite an “obvious” conflict of interest, Kolchinsky says, Moody’s selected Michael Kanef, who was “the key manager driving Moody’s policies” on subprime mortgages, to investigate Kolchinsky’s claims.
     When Kolchinsky reported the conflict of interest, Moody’s referred the matter to its attorneys at Kramer Levin Naftalis & Frankel, according to the complaint.
     Kolchinsky claims he was fired after refusing to speak to one of Moody’s lawyers without the presence of his own attorney, and he was invited to testify to the House Committee on Oversight and Government Reform in September 2009.
     “Incapable of challenging Mr. Kolchinsky’s facts and legal conclusions on the merits, Moody’s chose to attack and discredit Mr. Kolchinsky, yet Moody’s did not dispute any of the statements in Mr. Kolchinsky’s … memo,” according to the complaint.
     Kolchinsky says Moody’s tried to make him look like an unprofessional, potentially unstable, disgruntled employee.
     Moody’s claimed Kolchinsky’s reports were unsupported, yet “Moody’s own statements and actions following his reports show that Mr. Kolchinsky’s claims in fact had merit; and in the case of a number of policy suggestions, were adopted by Moody’s,” according to the complaint.
     Moody’s hired Kramer Levin as an advocate and defender but claimed that an independent investigator had cleared it of wrongdoing, according to the complaint.
     Kolchinsky seeks compensatory and punitive damages of $15 million, declaratory judgment that his reports were not confidential or privileged. He is represented by Jenice Malecki.

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