Moody's is reviewing ratings following report

Moody's Investors Service shares fell sharply Wednesday as the credit ratings agency said it is reviewing whether computer errors wrongly assigned top-quality ratings to debt in Europe that didn't warrant high marks.

Moody's said in a statement after the market close on Wednesday that it had hired a law firm to conduct an outside review of how it rates the debt in question, which was aimed at institutional investors. Moody's said it rated about $4 billion of the debt in Europe known as constant-proportion debt obligation, or CPDOs.

The disclosure follows a Financial Times report that Moody's incorrectly gave triple-A ratings to the CPDOs. The report also cited internal documents that it said indicated some senior officials at Moody's were aware early last year of the error.

Sen. Charles Schumer, D-N.Y., called on the Securities and Exchange Commission to examine the allegations.

"Moody's actions in this case are further evidence that the ratings agencies do not have effective controls and procedures in place to monitor their own activities, which have broad implications for the U.S. financial markets and U.S.-based investors," Schumer wrote in a letter to Chairman Christopher Cox, a copy of which was released by the Senator's office.

SEC spokesman John Nester said it was unclear whether the debt instruments in question were sold in the U.S. and subject to the agency's authority. However, he said, the SEC is working on a wide-ranging examination of the credit rating agencies' practices that is due to be complete this summer.

The products were designed to give investors access to the credit markets through notes with solid ratings. Some of the CPDOs, the FT said, should have not carried a 'Aaa' rating but in some cases should have been as much as four notches lower at 'A1.' The ratings are both investment grade, however.

The ratings help investors decide which instruments are of sufficient quality.

Moody's shares fell $6.99, or 15.9 percent, to $36.91 on Wednesday.

The agency said the soundness of its ratings is crucial.

"The integrity of our ratings and rating methodologies is extremely important," Moody's said. It said it would promptly take any appropriate action when it completes the review.

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AP Business Writer Alan Zibel contributed to this story from Washington.