Who leaked the S&P downgrade news?

Wall Street was given plenty of warning, and now the SEC may be looking into who knew what and when.

By Kim Peterson Aug 12, 2011 2:27PM
Standard & Poor's downgraded the U.S. credit rating late last Friday, and the news wasn't much of a surprise. Wall Street had heard a rumor early on that the downgrade was coming. News sites reported the rumor all day.

Unless it was all a huge coincidence, it's likely that someone in the know leaked the information. The questions are who and whether the leak led to early insider trading.

That's what the Securities and Exchange Commission is reportedly investigating. The SEC has asked Standard & Poor's to disclose who exactly knew about the downgrade before it was announced, the Financial Times reports. It's the start of a preliminary look into potential insider trading.

It will be a tough nut to crack. It's one thing to ask who knew the downgrade would take place. It's entirely a different beast to figure out where the information went from there -- and then to find out whether any improper insider trading was committed based on the information.

There's a very real consequence at stake. A 2006 law says a credit ratings firm like S&P could have its license revoked if it did leak information about the downgrade, MarketWatch reports.

The SEC could hunt for evidence of anyone shorting Treasury securities, one law professor told MarketWatch. "Once you find out who is trading in usual large volumes, then you can look into whether they have associations with anyone at S&P," the professor, John Coffee, added.

Wall Street already knew that a downgrade was likely. S&P had already put the U.S. on "CreditWatch negative" -- saying there was at least a 50% chance of a downgrade if lawmakers didn't "change the trajectory" of the nation's debt rate.

It seems like the SEC would have to investigate leaks on the government side as well. S&P notified the Treasury Department about the downgrade before the public, and someone from Treasury could have blabbed. Will the SEC also look at whether government employees made improper trades?

Standard & Poor's has done something few people thought possible: unite Democrats and Republicans. Both are demanding more scrutiny of the agency and possibly restrictions on its influence, The Wall Street Journal reports.

The Senate Banking Committee is reportedly considering a hearing to investigate the process that led to S&P's downgrade. Banking regulators "almost made it a given that you have to have these ratings," said Randy Neugebauer, a House Republican from Texas, the Journal reported. "What we're saying is we don't want them totally relying on ratings in making those determinations."
14Comments
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Have no confidence in our SEC. This is the same SEC that let Madoff, get away with his pyramid investing scheme for years, and bilk investors out of millions. This is also the same SEC that in 2004 changed the rules, for some UNKNOWN reason, and allowed the ten largest investment banks to lend out forty times or more there capital, that led to the housing bubble. The SEC reminds me of  the Fox, guarding the henhouse. The SEC needs investigating, to find out whose side they are really on.
Aug 12, 2011 5:19PM
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The only reason the SEC is being forced to investigate is because the politicians in this country are looking for a scapegoat for their playing russian roulette with the debt ceiling issue. Now they have to answer to their irrate constituents who have lost most of their investment nestegg and they are trying to do damage control to absolve themselves of liability for the ratings downgrade. There is no question that  the S& P people leaked info to the wall street insiders. That is how business on wall street is done every day. The rich get richer and when they feel like really making a killing they play their market manipulation games.  Real sorry state of democracy and our country. I'm sure the rest of the world who we are trying to impose democracy on is laughing their $%$ off.
Aug 12, 2011 4:45PM
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In the housing meltdown , S&P, along with Moodys' Investor Services and Fitch Ratings, gave top marks to the packages of home loans that later went so bad they became known as "toxic assets" starting around '06.  By the way, the gurus of real estate bragged that prices had never fallen nationwide--anyone recall that?  I still think the US is AAA and Warren Buffett, billionaire investor,  calls us "quadruple A" regardless of what S&P claims.   
Aug 12, 2011 5:41PM
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There was a huge put places on Morgan Stanley just prior to this announcment.   I'm curious if that trail could lead back to the leak.

 

Aug 12, 2011 6:05PM
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As for the market reaction, it doesn't matter if there was a leak or not.  Whether the news went out Friday/Monday the market would have reacted the same.  Question is, "Who knew ahead of time so they could make investment decisions prior to anyone else and who gained from the prior knowledge?"  Easy to find out.  Just look at the brokerage accounts of those within S&P/Treasury and anyone else who knew.  I agree with Joed2, that politicians are looking to blame someone for their ineptitude.  Heck, the President and other policians already blamed S&P when it was their fault.  ALL of our problems in this country can be traced back to the government.  I don't like Obama.  But, he is not responsible for the budget problems as he cannot make any decisions.  Congress controls the budget, taxes, deficit, wars.  It is congress that passes regulations, taxes, etc.  SO, if you are unhappy with things, then vote for new Representatives-Senators-Congressman.  I am voting out anyone who has been there more than one term as they have been part of the problem. 

Aug 12, 2011 6:01PM
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Looks like the Goverment is starting to feel what the American People

have been going through with these bogus credit rating companies.

Maybe now all their credit cards and home equity lines will all be slashed

down to what they owe and they won't be able spend Pauls money to pay Peter anymore.

Aug 12, 2011 5:09PM
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Perhaps the SEC is under extreme pressure to investigate S&P's  business ethics, and or  their reliability in the stock exchange. Revoking S&P's  licence if  indeed their was a leak regarding the down grade seems more then fair. And especially so if someone is manipulating events  for private gain.

 

The interesting part about greed and power, those seeking it eventually find they have lost at thier own game. 

Aug 12, 2011 7:15PM
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Shhhhh###TTTTT, its all insider trading anyway..They knew and held the news that Friday till Monday morning. THey knew it was going to be downgraded before the closing bell rang on Friday. Thats sounds to me like manipulation and is just as bad as insider trading.
Aug 12, 2011 5:19PM
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there is no doubt there was a leak and S&P people in the know gained from it as well as their friends.  now, classic law, is PROVE IT! 

 

they likely set themselves up pretty deep on the cash flow but believe me, the cash flow certainly went to the right island in the pacific! 

Aug 15, 2011 5:24AM
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This is a classic----we don't like the message, attack the messenger. 6 months to a year ago, folks were saying "Double AA, USA". This was no big kept secret. Even before the debt ceiling issue settled, it was being reported that we'd probably be downgraded anyway.. Several weeks ago when BAC started having problems, I said enough is enough and and sold every bond of theirs that I had. That included  NCNB, NationsBank, and I won't touch Countrywide, Merrill, or anything else they own. Folks just don't like the way things look. You needn't be Houdini to figure it out. This is just government payback and trying to focus our wrath on something other then the real problem-----our government.  
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difani:  

 

Buffet also calls for the Gov't to tax the billionaires a lot more.  He says the tax rates are not fair. 

 

 Let's have a flat tax where everyone pays the same to be fair.  And have a small Federal sales tax to pay for SS and Medicare and just use that money for those two items.

 

The problem with giving this Gov't more money is not the idea of more taxes it is the idea of more wasteful spending when they get that money.   The politicians use it to buy votes by giving it away to those that don't want to work. 

 

The Federal Gov't should have to balance its budget just like the States do and individuals should do. 

Aug 13, 2011 6:50PM
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It would seem that they notified the Treasury Department to insure someone else other than S&P knew before hand so they could point the finger at them.

Aug 14, 2011 11:08PM
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Angry Who really cares? The S&P did US a favor, rates are down!

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There was a much much much more important event that happened almost ten years ago, similar to the US downgrade. I am referring to 9-11. Certain people made millions shorting airline stock. Shorting of airline stock was so heavy, in the days leading up to 9-11 that it set a record, for short selling. After 9-11 most of the major newspapers had articles similar to this article, about the SEC going to do investigating about who did the short selling. No arrests,, None, Zippo, of what I would call terrorist activity, of knowing about 9-11 before it happened, and doing nothing about it, except using the opportunity to make $$$. I kept a link to one of our major newspapers, story about the short selling prior to 9-11, to remind me how inept, or crooked our SEC actually is. Sorry I do not think it is possible to post a link to the article I kept, on this message board.

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