Did Fitch and S&P Earn a Lawsuit for Tarnishing Italy’s Reputation and Undermining the Euro?

The Italian prosecutor filed charges on Monday against Standard & Poor’s and Fitch Ratings for alleged market manipulation during the downgrade of Italy’s credit rating.

After a two-year investigation, prosecutor Michele Ruggiero requested the filing of charges against a total of seven individuals, five of whom were employed at Standard & Poor’s during the incriminating period and two at Fitch. The extensive investigation included unannounced inspections by the financial police, closely monitored by the public, and the seizure of internal emails and wiretapping of analysts’ phone conversations.

Among the accused are Deven Sharma, president of S&P from 2007 to 2011, and Fitch’s chief operating officer David Michael Willmoth Riley. The agencies are accused of “deliberately providing biased and distorted information to financial markets,” according to a statement from the prosecutor’s office. They are alleged to have “calculatedly undermined the reputation, prestige, and creditworthiness of Italy in financial markets, reduced the value of Italian bonds, and weakened the euro,” the statement notes.

A judge must confirm the charges for a court process to be initiated, which could take months. The credit rating agencies cooperated in the investigation but emphasize that their economic assessments were independent and based on objective factors. The investigation was initiated after the Italian Consumers’ Association filed a lawsuit against Moody’s in 2010 for downgrading Italy’s credit rating, which shook financial markets and increased the country’s borrowing costs.

Investigators focused on the agencies’ more recent ratings, particularly those from last year when market turmoil pushed Italy to the brink of bankruptcy and accelerated the fall of the government led by Silvio Berlusconi. The investigation against Moody’s concluded without charges being filed, the prosecutor notes.