Business

SEC raps US downgrader

Egan-Jones has been labeled persona non grata by the US government.

The Securities and Exchange Commission took the unusual step yesterday of barring the small credit-ratings firm and its founder, Sean Egan, from officially rating governments, mortgages and other types of securities for 18 months.

Egan-Jones agreed to the ban to settle charges that it had made false statements when applying to become a government approved credit-ratings firm.

The SEC accused the upstart firm of overstating its expertise in rating certain types of debt.

Specifically, regulators said the firm falsely claimed it had been rating asset-backed and government securities since 1995, when no record of such ratings could be found.

The SEC also said the firm professed ignorance about some of its clients’ trading positions in reports, even though those positions had been relayed to Egan-Jones President Sean Egan.

The firm, which neither admitted nor denied wrongdoing yesterday, can still rate securities, just not with the government’s stamp of approval.

Egan-Jones is a much smaller rival to Moody’s Investors Service and Standard & Poor’s but is still well known on Wall Street. The firm focuses mostly on rating corporate bonds and securities.

Egan’s supporters have argued that the firm was targeted by the government after it downgraded the US in July 2011, around the same time the SEC started questioning the firm about its faulty 2008 application.