SEC charges credit ratings firm and CEO with violating conflict of interest rules

On Behalf of | Jul 6, 2022 | Financial News

The Securities and Exchange Commission announced it has charged a Pennsylvania based credit ratings firm and its founder with violating certain conflict of interest provisions.

The firm, Egan-Jones Ratings Company, is a nationally recognized statistical rating organization (NRSRO). It did not admit or deny the SEC’s findings but agreed to settle the matter by paying a $1.7 million penalty and over $146,000 in disgorgement and interest.

The SEC said the firm’s founder and chief executive officer Sean Egan was influenced by the business and marketing activities concerning a client while determining a credit rating, thus violating the commission’s NRSRO conflict of interest rules.

Egan-Jones was found to have violated another conflict of interest rule by continuing to issue and maintain ratings for another client even though that client had contributed ten percent or more of the company’s net revenues during the prior fiscal year.

In addition, it was determined that Egan-Jones failed to establish, maintain, and enforce policies and procedures reasonably designed to manage such conflicts of interest.

“Credit rating agencies play a vital role in assessing the credit risk of an issuer and must be vigilant in avoiding potential conflicts of interest to promote the integrity, impartiality, and quality of credit ratings,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As the SEC’s order finds, both Egan-Jones and Sean Egan violated the securities laws related to credit rating agency conflicts of interest and now are being held accountable for their actions.”

Along with paying the financial penalties, Egan-Jones also committed to conduct training, retain an independent consultant to assess its policies and procedures concerning conflicts of interest, and prohibit Egan from, among other things, participating in determining or monitoring credit ratings issued or maintained by Egan-Jones or developing or approving procedures used for determining credit ratings issued or maintained by Egan-Jones.

At Lewitas Hyman, our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. We have decades of experience representing clients with respect to examinations, investigations and enforcement proceedings initiated by the SEC, FINRA, state securities regulatory agencies and other self-regulatory organizations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655 6002 or through our online contact form.

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