SEC Moves To Shutdown Agency That Cut US Credit Rating Twice


While criminal banks and credit rating agencies that have perpetuated fraud and crashed the global economy are rewarded honest players are slaughtered.

Just in case one is wondering what is a greater crime in America: vaporizing $1.5 billion in client money (JP Morgan and Morgan Stanley), stealing hundreds of billions in clients money (Jon Corzine via MF Global), defrauding nations and governments around the world (Goldman Sachs), stealing billions through a PONZI scheme conducted while whistleblowers were repeatedly ignored (Maddoff), getting paid off to rubber stamp trillions of dollars in toxic assets as AAA rated (Moody’s, S&P, Fitch) engaging in widespread mortgage fraud and illegally stealing hundreds of thousands or homes from Americans (Wall Street banks – Boa, Citi, JP Morgan Chase, Wells Fargo, etc) or having the temerity to downgrade the US credit rating (twice)?

Here is the SEC with the answer:

SEC SUES EGAN-JONES, SEAN EGAN ON ALLEGED MISREPRESENTATIONS (Full Statement Below)

Somewhere Jon Corzine and the rest of the crooks on Wall Street are laughing all the way to the bank especially given light to recent revelations that the SEC actually destroyed thousands of documents of Wall Street’s greatest crimes.

As Business Insider so eloquently put’s it “this is going to be highly controversial“ and there is good reason why.

As pointed out above, the SEC turns a blind eye on crime after crime and the reality is that Egan Jones is considered by many to be the only objectively fair and honest rating agency on Wall Street.

They have a long history of issuing ratings based in reality which are immediately attacked by Wall Street insiders as “harsh” yet have repeatedly shown to have been absolutely justified.

In fact they are the only ratings agency that is not funded by the companies that they are issuing ratings for.

As I reported when the first cut the US credit rating (which again was initially attacked only to see S&P follow suit).

U.S. AAA Credit Rating Downgraded By Egan-Jones — Moody’s and S&P Warn They May Follow
Egan-Jones Ratings Agency – who called the 2008 financial collapse and lead Moody’s and S&P in putting the U.S on Credit watch – Cut U.S Debt Rating From AAA status over the weekend.

Truth – Next Exit – Egan Jones Ratings Agency Cuts US AAA Credit Rating[…]

Of course S&P and Moody’s are often accused of being in bed with Wall Street. Specifically, they are accused of not making critical rating changes until way after it is far beyond obvious.

Much of that criticism comes from the AAA credit ratings those agencies rubber stamped on toxic assets which were supposed to be secure based on an “insurance” of sort called credit default swaps. Remember, the so-called “AAA” rated CDO and related mortgage backed securities were peddled to investors around the world, secured by credit default swaps. Investors and taxpayers were then taken over the barrel when the house of cards unraveled and everyone had to face the realization that banks didn’t have the money to pay for their insurance. Needless to say, the ratings agencies still said they were AAA investments knowing they were junk and could not possible be paid for and hence trillions of dollars disappeared from people’s stock market investments when the world was forced to face the fact they were sold junk assets that were fraudulently given a AAA stamp during the 2008 Financial crisis.

As opposed to the major agencies, who now have “questionable” credibility to say the least, a smaller known credit rating agency, the Egan-Jones Rating Company, has made a name for themselves by putting out ratings based on reality.

Most notably they called the 2008 financial crisis far before it happened and led the pack months before hand issuing proper ratings reports months before the collapse.

The also lead the pack in putting the U.S on credit watch back in March.

Recall that the LA Times articles above points out that the S&P and Moody’s finally made the “credit watch” announcement at the end of last week, almost 3 months after Egan-Jones made the same call. That begs the question what took S&P and Moody’s so long?

In any case, On Wall Street reported last week, that at the same time that S&P and Moody’s were finally getting around to putting the U.S on credit watch, Egan-Jones warned they would decide over the last weekend to actually cut the U.S. AAA credit rating.

[…]

Just moments ago Egan-Jones announced their decision live on MSNBC following an interview with Treasury Secretary Timothy Geithner.

On MSNBC’s Squawk Box, Egan stated that the company has cut the U.S debt rating from AAA status over the weekend., Egan stated that the company has cut the U.S debt rating from AAA status over the weekend.

Read the Rest

Again we saw the same independent objectivity in cutting the US credit rating the second time around before the major agencies again followed suit.

Egan Jones Downgrades USA From AA+ To AA, Outlook Negative
A major US Credit rating agency, the first to downgrade the US credit rating before S&P followed suit, again downgrades US debt

Last July Egan Jones was the first credit rating agency accredited by the federal government to downgrade the United States credit rating.

Wall Street all but ignored the downgrade as Fitch and Stand and Poor’s gave warnings they may follow suit knowing full well Egan Jones was the only agency with even a fiber of moral fabric.

As the crisis unfolded Standard’s and Poor’s followed suit and cut the US credit rating which sent shock waves through the global financial markets.

Egan Jones has again cut the US credit rating – this time from AA+ to AA while putting the United States on a negative outlook for another ratings downgrade in the future.

S&P has already warned they may do the same so the question is will Wall Street ignore Egan Jone’s cut this time around?

[…]

Read The Rest

Apparently, the Wall Street Journal reported that they had reported on the allegations being brought against Egan JOnes prior to the filing of the charges.

SEC Charges Egan-Jones With Misrepresenting Expertise

U.S. securities regulators alleged that Egan-Jones Ratings Co. and its president, Sean Egan, filed inaccurate documents that exaggerated the small credit-rating firm’s expertise.

The Securities and Exchange Commission said Tuesday that Egan-Jones misrepresented how many securities the firm rated and the number of years it had been rating those deals. Such information gives investors and regulators insight into the experience of a credit-rating firm.

The SEC said that Egan-Jones made the “material misrepresentations and omissions” in July 2008 when it applied to the agency to issue officially recognized ratings on bonds issued by countries, U.S. states and local governments and securities backed by assets such as mortgages.

The SEC alleged that Egan-Jones “falsely stated” that it had 150 outstanding ratings on asset-backed issuers, which it had been rating since 1995, and 50 outstanding government-issuer ratings. In fact, the SEC alleges, Egan-Jones hadn’t issued ratings on any asset-backed or government-backed securities.

Egan-Jones “continued to make material misrepresentations regarding its experience rating asset-backed and government securities in subsequent annual certifications furnished to the SEC,” the agency said.

[…]

The charges were expected after the SEC voted on Thursday in favor of bringing an administrative action against Egan-Jones. […]

The Wall Street Journal had reported earlier that week that, according to people familiar with the situation, the SEC gave approval for Egan-Jones to rate bonds and other securities despite having concerns about the accuracy of the information provided in one of the firm’s applications to register with the agency. It is unclear if those concerns are related to Tuesday’s charges.

[…]

VIA the SEC

Egan-Jones Ratings Co. and Sean Egan Charged with Making Material Misrepresentations to SEC

FOR IMMEDIATE RELEASE
2012-75

Washington, D.C., April 24, 2012 — The Securities and Exchange Commission today announced charges against Egan-Jones Ratings Company (EJR) and its owner and president Sean Egan for material misrepresentations and omissions in the company’s July 2008 application to register as a Nationally Recognized Statistical Rating Organization (NRSRO) for issuers of asset-backed securities (ABS) and government securities. EJR and Egan also are charged with material misrepresentations in other submissions furnished to the SEC and violations of record-keeping and conflict-of-interest provisions governing NRSROs.
Additional Materials

SEC Order

The Commission issued an order instituting proceedings in which the SEC’s Division of Enforcement alleges that EJR — a credit rating agency based in Haverford, Pa. — submitted an application to register as an NRSRO for issuers of asset-backed and government securities in July 2008. EJR had previously registered with the SEC in 2007 as an NRSRO for financial institutions, insurance companies, and corporate issuers.

The SEC’s Division of Enforcement alleges that in its 2008 application, EJR falsely stated that as of the date of the application it had 150 outstanding ABS issuer ratings and 50 outstanding government issuer ratings. EJR further falsely stated in its 2008 application that it had been issuing credit ratings in the ABS and government categories as a credit rating agency on a continuous basis since 1995. In fact, at the time of its July 2008 application, EJR had not issued — that is, made available on the Internet or through another readily accessible means — any ABS or government issuer ratings, and therefore did not meet the requirements for registration as an NRSRO in these categories. EJR continued to make material misrepresentations regarding its experience rating asset-backed and government securities in subsequent annual certifications furnished to the SEC.

The SEC’s Division of Enforcement also alleges that EJR made other misstatements and omissions in submissions to the SEC by providing inaccurate certifications from clients, failing to disclose that two employees had signed a code of ethics different than the one EJR disclosed, and inaccurately stating that EJR did not know if subscribers were long or short a particular security.

The SEC’s Division of Enforcement further alleges that EJR violated other provisions of Commission rules governing NRSROs. EJR failed to enforce its policies to address conflicts of interest arising from employee ownership of securities, and allowed two analysts to participate in determining credit ratings for issuers whose securities they owned. EJR also failed to make and retain certain required records, including a detailed record of its procedures and methodologies to determine credit ratings and e-mails regarding its determination of credit ratings.

The SEC’s Division of Enforcement alleges that Egan provided inaccurate information that was included in EJR’s applications and annual certifications. He signed the submissions and certified that the information provided in them was “accurate in all significant respects,” when he knew that it was not. Egan also failed to ensure EJR’s compliance with the recordkeeping requirements and conflict-of-interest provisions.

The SEC’s Division of Enforcement alleges that, by the conduct described above, EJR willfully violated Exchange Act Sections 15E(a)(1), 15E(b)(2), 15E(h)(1) and 17(a), and Rules 17g-1(a), 17g-1(b), 17g-1(f), 17g-1(a)(2), 17g-2(a)(6), 17g-2(b)(2), 17g-2(b)(7), and 17g-5(c)(2). The Division of Enforcement further alleges that by the conduct described above, Egan willfully made, or caused EJR to make, material misstatements in its Form NRSRO, and caused or willfully aided, abetted, counseled, commanded, induced or procured EJR’s violations of Sections 15E and 17(a) of the Exchange Act and Rules 17g-1, 17g-2, and 17g-5.

The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation will be led by James Kidney.

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http://www.sec.gov/news/press/2012/2012-75.htm

Categories: ECONOMY

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