SEC staffers are looking into whether S&P employees selectively leaked news that the rating agency would be downgrading its rating on U.S. debt.  This might be the SEC's first step into a wider insider trading investigation.  And presuming the SEC does find that information was leaked, what chance does the SEC it can detect, much less prove, that any investors profited off of that valuable inside information?

Making a case is, at best, an uphill battle.  While credit rating agencies are required to have policies preventing such leaks, it is legally questionable whether simply leaking the information violates federal regulations.

Also, prosecutors might have a tough time proving the rating change was confidential.  The sheer amount of speculation about the downgrade could provide a legal shelter for investors. 

Yet, once such information is deemed to be confidential, it must also be ruled to be material.  That may prove difficult, since such information clearly impacts entire (global) markets, rather than specific securities.  

For further details, go to Peter Henning's White Collar Watch analysis in:    [Dealbook, 8/15/11]