The Center for Public Integrity

A new investigation from iWatch News has found that Koch Industries, a leader of industry resistance to proposed anti-terrorism safeguards at chemical plants, owns 56 facilities using hazardous chemicals that put 4.8 million Americans who live nearby at risk.

The financial meltdown of 2008 had many architects. The credit rating agencies, which bestowed the highest grades on pools of toxic mortgages, may bear the most blame.

The Financial Crisis Inquiry Commission concluded that the rating agencies were “essential cogs in the wheel of financial destruction” and that the crisis “could not have happened without the rating agencies.”

With the new disclosure that the Department of Justice is investigating whether Standard & Poor’s improperly boosted ratings, iWatch News took a look at what government investigators and former employers have said about the inner workings of the agencies. While S&P appears to currently be in the government’s crosshairs, far more is known about what went on behind the scenes at Moody’s, S&P’s biggest rival.

This partly owes to an investigation of Moody’s by the Securities and Exchange Commission. The SEC looked at whether Moody’s had purposefully failed to downgrade a group of derivatives worth about $1 billion even after it learned that the company had made a mistake in its analysis of the products’ worth.

The most damning evidence appeared in the form of an email from a Moody’s managing director.

“In this particular case we seem to face an important reputation risk issue,” the managing director wrote in an internal email. “To be fully honest this issue is so important that I would feel inclined at this stage to minimize ratings impact…rather than even allow for the possibility of a hint that the model has a bug.”

It was a run of bad luck that put Dr. Louis Kroot and his wife, Kathie, in debt in late 2005.  

A daughter with mental illness cost them thousands in medical and related bills for treatment in hospitals from London to San Antonio. An unexpected tax bill triggered by taking money out of a retirement plan led to more than $100,000 in debts to the state of Kentucky and the Internal Revenue Service. A broken water pump caused $12,000 in damage to their home.

“We were trying to figure out, how are you going to pay these bills?” says Louis. “And we were just scratching our heads.”

But one of the Lexington, Ky., couple’s most expensive moves was answering an ad in a military magazine from a company called Retired Military Financial Services that offered quick cash backed by Louis’ pension from 23 years as a Navy doctor. Louis signed a contract with the company that gave him $91,566.37 in a “lump-sum payment” in return for eight years of pension payments.

Including fees and other charges, the deal was equivalent to a loan at an annual percentage rate of over 30.7 percent — a rate that would be illegal under usury laws in many states. That’s made the company the subject of two class-action lawsuits over the past decade, and a frequent plaintiff and defendant  in bankruptcy courts around the country.

“We needed the cash flow to pay for what we needed paid for at that point in time,” says Kathie, 59. “To us, they were a godsend. We didn’t even know that people were filing lawsuits against them.”

Retired Military Financial Services, also known as Structured Investments, says its payments are “not a loan” and therefore not subject to usury laws. The company also says it provides an important service to military retirees who could not otherwise monetize their pension payments.

Steven P. Covey, an Army veteran who is one of the founders, defends his company and says its business practices are legal.