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SEC Emerges From Carbonite Deep Freeze, Sues Egan-Jones

Tyler Durden's picture




 

Just in case one is wondering what is a greater crime in America: vaporizing $1.5 billion in client money or having the temerity to downgrade the US (twice), JP Morgan and Morgan Stanley, here is the SEC with the answer:

  • SEC SUES EGAN-JONES, SEAN EGAN ON ALLEGED MISREPRESENTATIONS

Somewhere Jon Corzine is cackling like a mad cow.

More on Egan-Jones' inhuman crime (and PDF)

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

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.

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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Tue, 04/24/2012 - 16:38 | 2371402 Lost Wages
Lost Wages's picture

Overthrow the SEC.

Tue, 04/24/2012 - 16:48 | 2371451 NewWorldOrange
NewWorldOrange's picture

Egan Jones is the only rating agency in the U.S. who gets paid by those who subscribes to its information instead of by the entities it rates.

Tue, 04/24/2012 - 16:56 | 2371491 mendigo
mendigo's picture

Well the sec are gov bureaucrats and it would seem the EJ did not fill in all the proper boxes and file in triplicate. Its one thing to steal millions but these guys did not do thier paperwork (it is alledged) . They will be hung by the neck until dead.

If there is a rightous judge remaining he will make sec eat this filing.

Tue, 04/24/2012 - 16:57 | 2371498 f16hoser
f16hoser's picture

Where would the Porn Industry be without the SEC?

Tue, 04/24/2012 - 17:12 | 2371572 Straw Dog
Straw Dog's picture

James Grant, of Interest Rate Observer newsletter, was on Bloomberg a while back where he said, and I paraphrase, "The SEC is in fact a detriment to the investment community in that it leads people to believe they have a Goverment regulatory agency looking out for their interests, when in fact they have no such thing.

Tue, 04/24/2012 - 17:48 | 2371680 technicalanarchy
technicalanarchy's picture

This story reminds me so much of the feeling I had when the DHS (Department of Homeland Security) intecepted and confiscated a load of hair driers on the US Mexican border.

I was going to say also when the DHS rounded up all the hookers before the Super Bowl, now I assume they did that for the SS (Secret Service, damn it's only recently I started thinking of the Secret Service as the SS) 

Tue, 04/24/2012 - 18:04 | 2371718 Pygar
Pygar's picture

Oh, very subtle.  But I suppose it could have been worse--they could have had Sean Egan declared insane and threw him in a psikuska until the sun turns into a white dwarf, or for that matter just put a bullet in his head a la Vince Foster.

 

I wonder if there are any ratings organizations in countries without extradition treaties with the US? 

Tue, 04/24/2012 - 21:18 | 2372028 CoolBeans
CoolBeans's picture

True...but I think the SEC enjoys the slow death of a registrant via severe stress and thousands upon thousands of dollars in legal fees - as it keeps the story alive and useful as a tool to scare others in the business.

Tue, 04/24/2012 - 18:27 | 2371748 cristo
cristo's picture

ZH should start a leagal defence fund for SEAN EGAN i got $20 to spare .

Tue, 04/24/2012 - 18:31 | 2371755 Yamaha
Yamaha's picture

MOODY'S GETS EVERYTHING WRONG......

S&P GETS EVERYTHING WRONG.........

SEC MISSES EVERY SCAM.....

 

WHAT A FUCKING JOKE!  EGAN IS GUILTY OF MISREPRESENTATION?  THIS IS JUST TOTALLY FUCKED!

Tue, 04/24/2012 - 18:44 | 2371776 1971
1971's picture

Egan-Jones should take some kryptonite encased in carbonite which is formed to look like a stalactite and shove that right up SEC's Enforcement Divisions Ass.

Tue, 04/24/2012 - 19:26 | 2371848 CommonSense89
CommonSense89's picture

This adminstration (and all it's various agencies and czars and god knows what else exists) and it's corruption makes the Teapot Dome and Nixon scandals look like the Last Supper.

Tue, 04/24/2012 - 20:15 | 2371938 Ghostmaker
Ghostmaker's picture

I guess the new method is to kill the canary in advance.

 

An allusion to caged canaries mining workers would carry down into the tunnels with them. If dangerous gases such as methane or carbon monoxide leaked into the mine-shaft, the gases would kill the canary before killing the miners.

Noun

canary in a coal mine

  1. A warning of danger or trouble yet to come.
Synonyms

http://en.wiktionary.org/wiki/canary_in_a_coal_mine

 

 

Tue, 04/24/2012 - 21:16 | 2372026 CoolBeans
CoolBeans's picture

Administrative oversights.

They have thrown the book at this firm, apparently over a slew of administrative errors.

Example of one that has the "ring of sleezy" SOLELY because of how its worded in the complaint: 

"Different Code of Ethics than [the one the firm was using"...this just means that quite likely those couple of staff members still had the prior year's version and there were no signed acknowledgments on file for the most current version".  THIS IS A COMMON ADMIN OVERSIGHT.

As a compliance "geek" who has been in that biz for a decade and a half (not a gov staffer) - it is obvious (as you can all plainly see) that the SEC was on a big fishing expedition when they showed up at this firm's office.

Yep - its hard to imagine that this is the same regulator that didn't find SHIT at ol' Bernie Madoff's office, isn't it????

Tue, 04/24/2012 - 21:36 | 2372055 logicalman
logicalman's picture

I'd like to run out of here, SCREAMING!

Unfortunatelly, there's nowhere to run to.

Tue, 04/24/2012 - 21:46 | 2372071 gavroche76
gavroche76's picture

From what i know, Corzine stole the money mostly from farmers accounts. If these farmers, who probably own a lot more guns than any urban guys, fight back only with legal stuff, who will stop the vaporization ???? Bankers have a bright future.

Tue, 04/24/2012 - 21:47 | 2372075 CoolBeans
CoolBeans's picture

Securities Entrapment Commission or Society of the Ethically Challenged.

Wed, 04/25/2012 - 05:23 | 2372653 Youri Carma
Youri Carma's picture

SEC on the rougue! Sec is after everybody, including whistle blowers, except after the ones they suppose to be after namely the top criminals who got us into this mess in the first place. No surprise here since they’re part of the problem aka racket.

SEC mistakenly reveals whistleblower

SEC blasts ratings agency Egan-Jones

SEC charges former CalPERS CEO with fraud

SEC charges China’s SinoTech Energy with fraud

SEC charges optionsXpress in short selling scheme

SEC charges SharesPost and its CEO

etc…etc… all small fish!

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