House of Representatives member Brad Sherman (D-CA) joined the call for reforming credit-rating agencies, along with Ohio Attorney General Richard Cordray and Senator Al Franken (D-MN), who spoke out this week in favor of legislation to bring greater regulation on rating agencies and processes. Their efforts come as Congress is attempting to align the House and Senate versions of financial reform legislation that would impose stricter regulation and oversight on financial institutions. Rep Sherman, a member of the House Financial Services Committee, said in a conference call Thursday that he’s concerned committee chairman Barney Frank (D-MA) will not consent to rating-agency reform legislation and will instead insist on holding hearings and commissioning studies on the idea of agencies being selected to rate deals. Credit-rating agencies (CRAs) are often criticized for assigning triple-A status to risk-laden securities that were ultimately written down when the underlying subprime and Alt-A mortgages defaulted. Sherman compared this practice with a baseball team picking its own umpire. “As long as those packaging and selling investment products are able to choose the credit rating agency, credit rating agencies will compete by offering easy ratings,” Sherman said in a statement Thursday. Ohio AG Cordray is stepping up litigation actions, suing Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. The suit claims the CRAs cost state retirement and pension funds some $457m by approving high-risk securities that were ultimately written down in the financial crisis, costing investors millions. To reform the credit-rating process, Sherman introduced an amendment last year similar to the one sponsored by Sen Franken and added to the financial reform package passed by the Senate. The Franken amendment aims to reduce conflicts of interest inherent in banks choosing their own rating agencies. “The amendment I offered last November, which was the basis of Senator Franken’s successful effort in the Senate last month, would have the credit rating agencies selected by an impartial panel,” Sherman said. “No longer would credit-rating agencies secure multi-million dollar engagements by offering high ratings.” The Senate voted in late May to pass a sweeping rewrite of financial-sector regulations, with 59 votes in favor. The Franken amendment, added on May 13, would instruct the Securities and Exchange Commission (SEC) to establish a self-regulatory organization to assign CRAs to provide initial credit ratings on financial products. “My amendment cleans up Wall Street’s dishonest credit ratings system and replaces it with one that rewards accuracy instead of fraud,” Franken said in the statement. Write to Diana Golobay.