NEW YORK — Moody's Investors Service stock fell sharply Monday following news that the ratings company is being investigated for possibly misleading regulators three years ago.
Moody's disclosed late Friday that it might face a Securities and Exchange Commission administrative charge that it misled regulators when it applied for its license in 2007. Ratings agencies must be licensed by the federal government.
The investigation comes as ratings agencies like Moody's and Standard & Poor's continue to face scrutiny and criticism related to their role in the credit crisis.
Moody's stock dropped $1.59, or 6.8 percent, to $21.77 Monday, although the broader market rose sharply.
Ratings agencies have been criticized in recent years for giving certain investments top ratings only to see those investments collapse. The investments, such as securities backed by subprime mortgages, have been blamed for contributing to the 2008 credit crisis and the recession.
The investigation grows out of a separate issue, its ratings of European investments.
In 2008, Moody's acknowledged that a computer error led to incorrect ratings on 11 fixed-income investments worth about $1 billion. Moody's also said employees failed to fix the errors immediately after discovering them.
The SEC said Moody's might have provided false and misleading statements in its license application in 2007 based on the erroneous ratings discovered in 2008, according to the regulatory filing.
Moody's said in the filing it has already responded to the SEC. The company said its initial license application was accurate.
Executives from Moody's and S&P testified before Congress last month about their role in rating risky investments. Critics maintain ratings agencies were too close to the companies issuing debt to provide fair, accurate ratings assessments.
Moody's rated some of the investments that are at the heart of the SEC's civil fraud investigation against Goldman Sachs Group Inc., one of the big Wall Street banks that packaged the mortgage-related securities and other complex investments.
Ratings agencies are also facing lawsuits from investors who used the top ratings when they decided to invest in the risky securities.