Since the passage of the Dodd-Frank financial reform law, "Congress's noble attempt to protect investors from misconduct by ratings agencies has been thwarted by, of all things, the Securities & Exchange Commission," according to an article in yesterday's edition of The New York Times by Gretchen Morgenson.

"The S.E.C., which calls itself 'the investor's advocate,' is quietly allowing the raters to escape this accountability, the article said.

"When Dodd-Frank became law last July," the article continued, "it required that ratings agencies assigning grades to asset-backed securities be subject to expert liability from that moment on. This opened the agencies to lawsuits from investors, a policing mechanism that law firms and accountants have contended with for years. The agencies responded by refusing to allow their ratings to be disclosed in asset-backed securities deals. As a result, the market for these instruments froze on July 22."

"The S.E.C. quickly issued a 'no action' letter," the article said, "indicating that it would not bring enforcement actions against issuers that did not disclose ratings in prospectuses. This removed the expert-liability threat for the ratings agencies, and the market began operating again."

At the time, the article said that "the S.E.C. said its action was intended to give issuers time to adapt to the Dodd-Frank rules and would stay in place for only six months. But on Jan. 24, the S.E.C. extended its nonenforcement stance indefinitely. Issuers are selling asset-backed securities without the ratings disclosures required under S.E.C. rules, and rating agencies are not subject to expert liability."

The article noted that Martha Coakley, the attorney general of Massachusetts, has brought significant mortgage securities cases against Wall Street firms - and she is disturbed by the S.E.C.'s position. Last week, she sent a letter to Mary Shapiro, the chairwoman of the S.E.C., asking why the commission was refusing to enforce its rules and was thereby defeating Congressional intent where ratings agencies' liability is concerned.

"We wanted to make clear that we see this as a problem and important enough that we would like an answer," Ms. Coakley said in an interview last week, the article said, adding that "an S.E.C. spokesman, John Nester, said that the agency would respond to Ms. Coakley."

The article added that "Meredith Cross, director of the S.E.C.'s division of corporation finance, explained the agency's decision to stand down on the issue: 'If we didn't provide the no-action relief to issuers, then they would do their transactions in the unregistered market,' she said. 'You would impede investor protection. We thought, notwithstanding the grief we would take, that it would be better to have these securities done in the registered market.'"

Unfortunately, the S.E.C.'s actions appear to continue the decades of special treatment bestowed upon the credit raters, the article said.

Barney Frank, "the Massachusetts Democrat whose name is on the 2010 financial reform legislation said he believed the commission's move was part of a longer-term strategy," the article said, "to eliminate investor reliance on ratings and remove, at long last, all references to credit ratings agencies in government statutes. Indeed, the S.E.C. proposed a new rule last week that would eliminate the requirement that money market funds buy only securities with high credit ratings. If the rule goes through, fund boards would have to make their own determinations that the instruments they buy are of superior credit quality. Still, Mr. Frank said, the commission could do a better job of explaining that its nonenforcement stance is part of an effort to reduce reliance on ratings. 'The message should not be lax enforcement by the S.E.C.; it should be a lack of confidence in the ratings,' he said."