Egan-Jones and Founder Sean Egan Agree to 18-Month Bars from Rating Asset-Backed and Government Securities Issuers as NRSRO
The Securities and Exchange Commission today announced that Egan-Jones Ratings Company (EJR) and its president Sean Egan have agreed to settle charges that they made willful and material misstatements and omissions when registering with the SEC to become a Nationally Recognized Statistical Rating Organization (NRSRO) for asset-backed securities and government securities.
EJR and Egan consented to an SEC order that found EJR falsely stated in its registration application that the firm had been rating issuers of asset-backed and government securities since 1995 — when in truth the firm had not issued such ratings prior to filing its application. The SEC’s order also found that EJR violated conflict-of-interest provisions, and that Egan caused EJR's violations.
EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.
“Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “EJR and Egan’s misrepresentation of the firm’s actual experience rating issuers of asset-backed and government securities is a serious violation that undercuts the integrity of the SEC’s NRSRO registration process.”
Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Provisions requiring NRSROs to retain certain records and address conflicts of interest are central to the SEC’s oversight of credit rating agencies. EJR’s violations of these provisions were significant and recurring.”
Egan and his firm were charged last year for falsely stating on EJR’s July 2008 application to the SEC that it had 150 outstanding asset-backed securities (ABS) issuer ratings and 50 outstanding government issuer ratings, and had been issuing credit ratings in these categories on a continuous basis since 1995. Egan signed and certified the application as accurate. According to the SEC’s order, EJR had not issued any ABS or government issuer ratings that were made available through the Internet or any other readily accessible means. Therefore, EJR did not meet the requirements for registration as a NRSRO in these classes. The Commission found that EJR continued to make material misrepresentations about its experience in subsequent annual certifications. EJR also made other misstatements in submissions to the SEC, and violated recordkeeping and conflict-of-interest provisions governing NRSROs — which are intended to safeguard the integrity of credit ratings.
EJR and Egan agreed to certain undertakings in the SEC’s order, including that they must conduct a comprehensive self-review and implement policies, procedures, practices, and internal controls that correct issues identified in the SEC’s order and in the 2012 examination of EJR conducted by the SEC’s Office of Credit Ratings. EJR and Egan consented to the entry of the order without admitting or denying the findings. The order requires them to cease and desist from committing or causing future violations.
The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation was led by James Kidney with assistance from Alfred Day and Ms. Nolan. The related examinations of EJR were conducted by staff from the SEC’s Office of Credit Ratings, Office of Compliance Inspections and Examinations, and Division of Trading and Markets. Examiners included Michele Wilham, Jon Hertzke, Mark Donohue, Kristin Costello, Scott Davey, Alan Dunetz, Nicole Billick, David Nicolardi, Natasha Kaden, and Abe Losice.