The Moody’s Corporation said in a regulatory filing that its credit rating unit could face enforcement action from the Securities and Exchange Commission for reportedly misleading regulators in a 2007 application to remain a nationally recognized rating agency.
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According to Moody’s filing, the S.E.C. claimed the Moody’s description of its procedures for determining credit ratings was ”false and misleading” because of Moody’s own finding that a policy had been violated internally.
Shorter version: Moody's method of rating mortgage-backed securities was basically "ask Goldman Sachs what they wanted it to be", rather than the algorithms and models they claimed to use.
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