NEW YORK (
) -- Egan-Jones, a competitor ratings agency to Moody's and Standard & Poor's, has been charged by the
Securities and Exchange
commission for "material misrepresentations and omissions" in its July 2008 application to register as a certified agency with securities regulators.
In its charge, the SEC says that when applying to be what's called a "Nationally Recognized Statistical Rating Organization," Egan-Jones claimed it had rated asset-backed securities and government debt obligations; however, the firm had no proof of such ratings. The SEC also said that it found weaknesses in Egan-Jones analyst compliance policies and its disclosures relating to conflicts of interest in rating securities.
| Sean Egan of Egan Jones
The firm and its co-founder Sean Egan were recognized for prescient calls about weaknesses in the U.S. banking system ahead of the 2008 financial crisis, and have since made headlines for controversial downgrades to the debt of issuers ranging from the U.S. government to investment bank
"The SEC's Division of Enforcement alleges that in its 2008 application, EJR falsely stated that as of the date of the application it had 150 outstanding ABS issuer ratings and 50 outstanding government issuer ratings... In fact, at the time of its July 2008 application, EJR had not issued -- that is, made available on the Internet or through another readily accessible means -- any ABS or government issuer ratings, and therefore did not meet the requirements for registration as an NRSRO in these categories," the SEC said in its charge.
In its charge, the SEC went on to say that Egan-Jones continued to misstate the scope of its ratings in subsequent annual certifications to the SEC. Meanwhile, the regulator also said that Egan-Jones failed to properly manage conflicts of interest by barring analysts from owning securities that it rates and misstated whether it knew subscribers were long or short some of those securities.
"The SEC's Division of Enforcement alleges that Egan provided inaccurate information that was included in EJR's applications and annual certifications. He signed the submissions and certified that the information provided in them was "accurate in all significant respects," when he knew that it was not. Egan also failed to ensure EJR's compliance with the recordkeeping requirements and conflict-of-interest provisions."