THE UNITED STATES’ markets watchdog, the Securities and Exchange Commission, is launching a preliminary examination into whether an Standard & Poor’s employees insider traded ahead of the downgrade, according to a report in the Financial Times.

The SEC has asked S&P to disclose a list of all employees who were made aware of the ratings agency’s plans to downgrade its rating of the United States before it was made public last week.

If someone from the S&P did in fact leak information, the agency, not just the individual, could be in serious trouble because of a little-known law from 2006.

From MarketWatch:

At issue, in part, is a 2006 statute — the Credit Rating Agency Reform Act — that says a credit rating agency could have its licence registration revoked if it leaked information about its pending downgrade decision before making that information publicly available. It also said that the rater must have policies and procedures to prevent such a disclosure.

However, proving that someone within the agency insider traded or leaked information ahead of the downgrade would be difficult, the FT reported.  That’s because many traders were already anticipating the downgrade and bets occur across many different securities.

US stocks had their worst day since December 2008 on Monday, the first day after the downgrade, which reduced the US government’s credit rating from AAA to AA-plus for the first time.

This isn’t the first time a government body has probed the downgrade; the Senate Banking Committee is already preparing for a possible investigation into S&P downgrade of US government’s credit rating, according to a committee aide.