UPDATE 2-US regulators urged to probe Moody's reported error

(New throughout; adds SEC chairman, securities expert, Moody's, lawmaker statements)

By Karey Wutkowski and John Poirier

WASHINGTON, May 21 (Reuters) - U.S. lawmakers on Wednesday urged the Securities and Exchange Commission to investigate a reported coding error that may have led Moody's Corp to incorrectly assign triple-A ratings to some complex European debt products.

Sen. Charles Schumer, a Democrat from New York, and Rep. Paul Kanjorski, a Pennsylvania Democrat, said the matter deserves close scrutiny, especially if U.S. investors were impacted.

"The news today about Moody's greatly concerns me," Kanjorski, chairman of a House subcommittee on capital markets, said in a statement to Reuters. "Moody's must come forward immediately to explain its actions and clarify what happened."

The Financial Times said Moody's did not downgrade the ratings after discovering the error in 2007, raising questions about whether investors and clients were informed in a timely manner.

The SEC said on Wednesday it was unclear if it had jurisdiction in the Moody's matter.

"It is my understanding that reports thus far concern activities in Europe, over which the SEC may or may not have jurisdiction," SEC Chairman Christopher Cox told reporters after a commission meeting.

Regulators in the UK and the European Union have not adopted any formal oversight of the ratings agencies, leaving them to an industry code of conduct.

When asked about the SEC's reaction to the reported computer error by Moody's, Cox said credit rating agencies' compliance with their internal procedures and related issues are "all regulatory concerns" for the SEC.

Shares of Moody's fell by as much as 17 percent on Wednesday after the Financial Times reported Moody's had wrongly assigned the triple-A ratings on so-called constant proportion debt obligations, or CPDOs. The shares closed down almost 16 percent at $36.91 on the New York Stock Exchange.

Moody's said in a statement that it realizes the seriousness of the questions raised in the Financial Times article and has initiated a thorough external review of its European CPDO ratings process.

It said it rated 44 European CPDO tranches, representing about $4 billion in rated securities, but did not indicate who invested in the securities.

Kanjorski, whose subcommittee is studying how credit-rating practices contributed to the subprime mortgage crisis, said if the error affected U.S. investors, the SEC should examine the situation.

"I also want to know when the commission learned of these problems and whether it might have affected Moody's application under the 2006 law for continued designation as a Nationally Recognized Statistical Rating Organization (NRSRO)," he said.

Schumer said in a letter to Cox that the SEC should fully investigate the matter and impose sanctions on Moody's if it can verify the ratings agency covered up the error for a year after the company officials learned of it.