Moody’s said Tuesday that some employees violated its code of conduct after they discovered a snafu that resulted in certain poor-performing investments receiving much higher ratings than they warranted.

In a press release, Moody’s (MCO) said that unnamed members of its credit committee” considered factors inappropriate to the rating process” after they learned of the modeling error. Just what were these “inappropriate factors”? The company didn’t elaborate, but implied that committee members considered the potential impact on market participants, including Moody’s and its clients.

Tuesday’s mea culpa is another black eye for Moody’s which, along with rivals S&P (MHP) and Fitch, have come under attack for giving high ratings to certain bond-related investments that later tanked in value. Critics charge that the ratings agencies had an inherent conflict of interest because they were paid by the companies issuing the bonds. The ratings agencies have denied the allegations, but have now admitted that models they used to justify the ratings were probably wrong.

The Financial Times revealed in May that a coding error in a Moody’s computer model caused a specific set of structured bonds, known as constant-proportion debt obligations (CPDOs) and backed by derivatives, to be assigned a rating four levels higher than they deserved. The ratings agency has since moved to correct the error, but the effort was widely perceived as too little too late.

Structured debt products are so complex that most investors rely on the work of ratings agencies like Moody’s to determine the creditworthiness of the underlying bond. This is, in part, because the single structured bond comprises pieces of many different loans, bonds, and other debt products. Many investors thought they were buying highly-rated securities when they were actually getting toxic waste. When the news broke, Josh Rosner, who works at research firm Graham Fisher, said that the market should be watching Moody’s carefully to see how the firm dealt with the mistake. “Was it the break in or the cover-up that caused Nixon to be impeached?,” wrote Rosner.

In a statement Tuesday, Moody’s chairman and CEO Raymond McDaniel said he is “deeply disappointed by the conduct that occurred in this incident. The integrity of our rating process is core to Moody’s values and is essential to the market.”

Sadly for McDaniel, perceptions of the ratings process have been so weakened that the Security and Exchange Commission is trying to find a way to change the ratings system or minimize their importance.

Wall Street could be in for another nasty-tasting serving of alphabet soup. In the wake of the debt market messes tied to collateralized debt obligations, or CDOs, and structured investment vehicles, or SIVs, Bloomberg reports that big banks could now face losses on another obscure asset class: variable interest entities, or VIEs.

The industry has already taken tens of billions of dollars of writedowns on CDOs and other mortgage-related securities. Now, Bloomberg reports, troubles in financing VIEs - another type of financial structure that lets firms keep risky assets off their balance sheets - could add new losses to the toll. Estimates of possible losses range from $30 billion at Moody’s to $88 billion at CreditSights, Bloomberg reports. Firms could have to recognize losses tied to the VIEs if they are forced to provide financing to the entities, as they did in the case of the SIVs that ran into financing trouble this fall. Beyond the usual suspects, such as Citi (C) and Merrill (MER), Bloomberg says the VIE mess could even touch two firms that have largely steered clear of the subprime swamp - Goldman Sachs (GS) and Lehman Brothers (LEH).

One factor working in the banks’ favor is that for now, it appears that bond insurers Ambac (ABK) and MBIA (MBI) are going to hold onto their triple-A ratings, forestalling a downgrade that could have forced the banks to backstop the VIEs. But that doesn’t mean the issue is going away. A top S&P exec told Bloomberg that “the disclosure on VIEs is hopeless,” which means investors in financial firms have just one more worry to add to an already sizable list.