SEC Bars Egan-Jones from Issuing Certain Ratings

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SEC Bars Egan-Jones from Issuing Certain Ratings

Smaller than Standard & Poor’s or Moody’s, Egan-Jones is based in Haverford, PA with principle Sean Egan at the helm. It differs not only in size from its competitors but also in its business model. Standard & Poor’s and Moody’s both are paid by the companies that they rate while Egan-Jones accepts payment only from the investors interested in the ratings. This seemingly less biased business model has not completely protected the ratings firm. The Securities and Exchange Commission (SEC) investigated the firm for a few years and filed charges against the company and its principle. According to a NY Times Dealbook article, Egan-Jones is barred from issuing certain government-recognized ratings for 18 months. The article stated that the trouble Egan-Jones found them in started when the firm made misstatements on an application with the government.

The SEC said the firm had exaggerated its record when it applied for a government designation in July 2008. The firm said then that it had performed 150 ratings of asset-backed securities and 50 ratings of governments, when it actually had performed none at that time, according to the agency. Egan-Jones had also violated provisions preventing conflicts of interest, because two analysts helped to rate entities whose securities they also owned, according to the SEC.

The ratings firm allegedly allowed two analysts to assist in rating entities comprised of securities they also owned. The SEC also alleged that the firm made misstatements when applying for a government designation. These misstatements were characterized in the article as the firm stating they had rated 150 asset-backed securities and 50 ratings of governments when at the time, it had not performed any of the 150 ratings it claimed.

Discussed in the article also were the terms of the penalty- the firm is still allowed to issue ratings but when rating asset-backed or government securities issuers, the firm will not be able call themselves a nationally recognized statistical rating organization. This ban will last for 18 months and Egan-Jones will be eligible to apply again for the designation once the ban ends.

If you or someone you know has lost money as a result of an investment in securities, please contact Richard Frankowski at 205-747-1903 to discuss your potential legal remedies.

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