The mystery of the $890 billion insurer MBIA guarantees the safety of bonds that fund everything from the Eurotunnel to commercial aircraft to cities across America. A relentless short-seller charges that its business model isn’t sound. Can he be right? (Full story)

NEW YORK (FORTUNE) - If you believe in first impressions, it looks like MBIA has won its long-running battle with short sellers.

Skeptics have long contended that the bond insurer has a slew of serious accounting issues, and that it doesn't deserve its triple A credit rating. Both Spitzer's office and the SEC have been investigating the company. This morning, a Wall Street Journal report said that the company was close to settling both investigations.

The Journal, which cited people familiar with the matter, said that MBIA (Research) would agree to pay less than $100 million in fines and damages to settle allegations that it accounted for a 1998 reinsurance transaction improperly.

"In light of what the regulators did to AIG, it would be shocking to us if they let MBIA off with a slap on the wrist, given that I believe their transgressions are far more serious," says Whitney Tilson of hedge fund T2 Partners, which has a short position in MBIA' s stock.

So is the battle really almost over? Maybe. But there are a few weird things that are worth noting. One is that two and a half months ago, the Journal ran almost exactly the same story. But that time, there was no settlement.

The other issue for the company is that the rating agencies seem to be getting more cautious. You'll often hear the rating agencies described as MBIA's "de facto regulators," because they give MBIA its triple A rating, which is the foundation of its business.

Last week, Moody's released a report on the "non-core" businesses of guarantors, meaning the businesses that companies like MBIA engage in that have nothing to do with guaranteeing bonds.

"Such activities introduce distinct financial, operational, and reputational risks to the guarantors' core franchise," wrote Moody's senior vice president Stanislas Rouyer.

Today, the agency issued another report that noted MBIA's "missteps." Moody's said that it "believes that the issues under legal and regulatory scrutiny should have no meaningful impact on MBIA's current ratings."

But Moody's added that "the company exercised poor business judgment in a few meaningful situations by pursuing activities or engaging in actions that were inconsistent with what is expected of a highly rated financial guaranty insurance company," and that some of MBIA's actions "either presented a misleading picture of the financial condition of the firm... or subjected the firm to public criticism."

And Moody's said that MBIA's financial condition, while still consistent with a triple A rating, has "weakened noticeably."

In other words, if the real regulators let MBIA off the hook easily, the de facto regulators may still crack down.