Egan-Jones barred from some ratings to resolve SEC case

WASHINGTON/NEW YORK Tue Jan 22, 2013 3:53pm EST

WASHINGTON/NEW YORK (Reuters) - Credit rating firm Egan-Jones and its president Sean Egan agreed to be barred for 18 months from giving officially recognized ratings on asset-backed or government securities to resolve charges they lied on registration forms, U.S. regulators said on Tuesday.

The U.S. Securities and Exchange Commission said the firm and Egan misrepresented its operations, were sloppy in compliance, violated conflict-of-interest provisions and were ordered to pay a fine of $30,000.

"Accuracy and transparency in the registration process are essential to the Commission's oversight of credit rating agencies," SEC enforcement director Robert Khuzami said in a statement.

Specifically, Egan-Jones said in a 2008 application to gain additional certification as a Nationally Recognized Statistical Rating Organization (NRSRO) for asset-backed and government securities, that it had been rating these types of issuers since 1995. Sean Egan signed off on the application knowing, or should have known, there were false statements, the SEC said.

The SEC found that no such ratings were ever issued, as required, "on the internet or through another readily accessible means" before the 2008 filing. It also found that the firm and Egan continued to make material misrepresentations about its experience in subsequent annual certifications.

Eagan-Jones neither admitted nor denied the SEC's findings.

In a statement e-mailed to Reuters, the firm said it was pleased the matter was settled on "mutually agreeable terms."

"Egan Jones remains an NRSRO for all of its corporate, bank/finance, and insurance ratings and will re-apply for NRSRO designation in relatively short order," the firm said.

It can reapply for NRSRO certification for asset-backed and government securities ratings after the 18-month ban expires.

Egan-Jones' business is primarily to issue ratings on about 1,200 investment and high-grade corporate debt issuers.

The SEC charged Egan and the firm last year, saying the firm claimed to have 200 outstanding ratings even though it had not issued in the proper manner.

In April, Sean Egan disputed the SEC's charges in a conference call with reporters where he would only entertain questions submitted via email.

"We vehemently disagree for a whole host of reasons and will contest these claims," Egan said at the time.

The firm can still issue and maintain its ratings on asset-backed and government securities, but must prominently disclose that the opinions on these specific assets are "not issued or maintained by a registered NRSRO," the SEC said.

In order to resolve the charges, Sean Egan and his firm also agreed to fix the issues and submit a report, signed under penalty of perjury, detailing the steps taken.

Egan-Jones is among the smallest U.S.-recognized credit rating firms in an industry dominated by Moody's Corp, McGraw-Hill Cos Inc's Standard & Poor's and Fimalac SA's Fitch.

(Editing by Grant McCool and Tim Dobbyn)