The Securities and Exchange Commission has barred Egan-Jones Ratings Co. from rating governments and issuers of other types of bonds as a recognized ratings agency for at least 18 months.
The SEC said Tuesday that the independent credit-rating agency agreed to the measure to settle charges that it had made false statements when applying to become a "Nationally Recognized Statistical Rating Organization" in 2008.
The firm will likely keep offering ratings on government and asset-backed issuers, said Bill Hassiepen, co-head of Egan-Jones' ratings desk. They just won't carry the SEC's stamp of approval. "We can still issue those ratings," he said. "It's just that as far as the SEC is concerned they wouldn't exist."
Egan-Jones allegedly claimed to have ratings on 150 asset-backed securities and 50 governments. The SEC also said Egan Jones' application stated that it had been rating these securities since 1995. But the SEC said it couldn't find any such ratings available online or through other "readily accessible" venues.
In a statement, Robert Khuzami, director of the SEC's enforcement division, called the misrepresentation "a serious violation that undercuts the integrity of the SEC's ... registration process." The SEC also charged the firm with repeatedly violating conflict of interest provisions. According to one example cited by the SEC, two analysts at the firm owned securities backed by the same bond issuers they helped rate.
Egan Jones and its founder, Sean Egan, agreed to the order without admitting any wrongdoing. The Haverford, Pa., shop is one of 11 firms the SEC recognizes as an official rating organization.
The SEC's order bars the firm from giving official ratings for issuers of government and asset-backed bonds, often pools of mortgages or automotive loans. But the firm is best known for its corporate credit ratings, and the settlement leaves Egan-Jones' ability to offer recognized ratings on corporations intact, Hassiepen said.
"Our bread and butter is unaffected," he said.
In the run-up to the 2008 financial crisis, Egan-Jones became known for railing against the power of the three major rating agencies, Moody's Investors Service, Standard & Poor's and Fitch Ratings.
Last September, Egan-Jones cut its rating on U.S. government debt to AA- from AA, prompted by the Federal Reserve's effort to support the economy. The firm said the Fed's buying of mortgage bonds would hurt the U.S. economy by weakening the dollar and pushing up prices for oil and other commodities.