U.S. securities regulators on Tuesday charged credit-rating firm Egan-Jones and its president, Sean Egan, with making false statements to the agency in its 2008 regulatory application to rate asset-backed and government securities.
The Securities and Exchange Commission's administrative charges also include allegations of record-keeping and conflict-of-interest violations.
News of the impending charges surfaced last week when the SEC commissioners met behind closed doors and voted to take enforcement action.
The disclosure of the SEC's vote prompted Sean Egan last week to appear on television and say the application was "accurate to the best of my ability." The company's attorneys told Reuters last week that they plan to vigorously contest the SEC's charges.
On Tuesday, a lawyer for Egan-Jones said his clients will fight the charges.
"Egan-Jones and Mr. Egan dispute the allegations and will litigate vigorously. Not one word in the administrative proceeding questions the quality, integrity and timeliness of the Egan-Jones ratings," said Jacob Frankel, an attorney for Egan-Jones.
Tuesday's action marks only the second time the SEC has filed charges against a credit rating agency.
Egan-Jones is among the smallest U.S.-recognized credit rating firms in an industry dominated by three major agencies: Moody's Corp, McGraw-Hill Cos Inc's Standard & Poor's, and Fimalac SA's Fitch.
Sean Egan, the firm's founder, has been an outspoken critic of his competitors for giving rosy ratings to toxic subprime securities during the financial crisis.
His firm has also been faster to downgrade the debt of some developed countries as well certain companies during the financial crisis.
The SEC alleges that in its July 2008 application, Egan-Jones falsely stated it had 150 asset-backed issuer ratings and 50 outstanding government issuer ratings.
In fact, the SEC claims, the company had never issued any readily accessible ratings for asset-backed or government securities, making it ineligible for the SEC to recognize the firm as a "nationally recognized" credit-rating agency in those categories.
The SEC also claims that Egan-Jones failed to enforce its conflict-of-interest policies, allowing two analysts to participate in ratings for issuers whose securities they owned.
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