Moody's Investors Service announced that it is initiating employee disciplinary proceedings after a review of its ratings process for European constant-proportion debt obligations (CPDO).

The ratings agency has concluded that members of a European CPDO monitoring committee engaged in conduct contrary to Moody's Code of Professional Conduct, the unit of Moody's Corporations said on Tuesday.

An investigation conducted by the law firm Sullivan & Cromwell found that members of the committee did not make changes to the methodology for rating European CPDOs to mas any model error.

Some members considered factors inappropriate to the rating process following the discovery of the model error, the company said. The company's conduct rules say the committee can only consider relevant credit factors and not the potential impact on the firm, an investor or other market participant.

I am deeply disappointed by the conduct that occurred in this incident, said Moody's Chairman and CEO, Raymond McDaniel.

The 11 CPDOs involved have a value of slightly less than $1 billion. After a correction, the CPDOs should have had an initial rating of Aa, not Aaa.

Moody's said penalties for employees involved could include termination. It is also reviewing existing CPDO ratings. The company added that it is accelerating measures to strengthen its rating and monitoring processes.

Shares of Moody's Corp. fell 51 cents, or 1.48 percent to close at $33.93.