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« Sheila Bair On Clawbacks, Bailout Battles With Geithner | Main | DAILY SHOW: MBA Walks Away From Mortgage »

SEC Sues The Only Rating Firm Not On Wall Street's Payroll


By William D. Cohan

The Securities and Exchange Commission, it seems, has finally lost its mind.

Motivated by what I consider pure maliciousness, the SEC initiated a “cease and desist” administrative proceeding it deemed “necessary for the protection of investors and in the public interest” against Egan-Jones Ratings Co., a privately owned, 20-person firm based in Haverford, Pennsylvania, and against its principal owner, Sean Egan.

Egan-Jones, founded in 1995, is one of nine ratings companies that the SEC has accredited as “nationally recognized,” allowing the firm to rate the debt of sovereign nations, companies and asset-backed securities, among others. Notably, it is the only one of the nine that gets paid by investors instead of by the issuers of securities.

The bigger and better-known ratings companies -- Standard & Poor’s (owned by McGraw-Hill Cos. (MHP)), Moody’s Corp. (MCO) and Fitch Ratings Ltd. -- are paid by the Wall Street banks that underwrite the debt securities of corporate issuers. That is, the companies are beholden to the sellers of the products they are supposed to pass judgment on, not the buyers. That’s akin to allowing the Hollywood studios to pay the nation’s film critics for their opinions.

Shopping Around

We all saw the result in 2007 and 2008. A major cause of the financial crisis was that S&P, Moody’s and Fitch, while being paid hundreds of millions of dollars by Wall Street, gave AAA ratings to complicated, risky securities that turned out to be anything but AAA. If a big bank didn’t like a proposed rating, it just shopped the deal until it found a firm that would provide something it liked better.

Who can forget this memorable April 2007 instant-message exchange between two S&P analysts, Rahul Dilip Shah and Shannon Mooney?

“Btw, that deal is ridiculous,” Shah wrote to Mooney about some mortgage securities they were asked to rate.

“I know, right . . . model definitely does not capture half the risk,” she replied.

“We should not be rating it,” he answered.

“We rate every deal.  It could be structured by cows and we would rate it.”

You would have thought that after the crisis exposed this kind of abhorrent behavior -- to say nothing of the obvious conflict of interest -- the SEC would have considered scrapping the issuer-pays model on ratings. You might have even thought the SEC would have sued S&P, Moody’s and Fitch for their reckless conduct.

Alas, such obvious steps are out of the question at an SEC headed by Mary Schapiro, who previously led the Financial Industry Regulatory Authority, Wall Street’s self-financed, self-serving watchdog organization. (When Schapiro left Finra, it gave her a $9 million bonus).

True, for a while, the SEC put on a good show of wanting to reform the ratings companies. It held round-table discussions with interested parties to discuss rectifying the horrific shortcomings of S&P, Moody’s and Fitch. Robert Khuzami, the SEC’s chief enforcement officer, suggested in an interview with Reuters a year ago that the SEC was considering a lawsuit against S&P for its role in the financial collapse. But in the end, nothing changed. The issuer-pays model is still the dominant architecture for the ratings firms.

Continue reading at Bloomberg...


Egan Jones: "Central Banks Are Manipulating The Markets" (CNBC, Sep. 18)

Sean Egan, President of Egan-Jones Ratings Company says that added liquidity from QEternity is pushing up commodity prices and hurting consumers - CNBC.

Egan-Jones is the most aggressive and independent of all the ratings agencies, has been the lead agency in downgrading the U.S. twice in the past 18 months, and might just do it again if Congress doesn't get serious about annual $1.5 trillion deficits.


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Reader Comments (8)

Totally brilliant DB. Now that's funny right there. You'd be pissed if they adopted this as the new official seal.
Oct 2, 2012 at 11:30 PM | Unregistered CommenterSKINFLINT
It would be a more honest seal. I will say that.
Oct 3, 2012 at 4:00 AM | Registered CommenterDailyBail
This woman, Mary Shapiro would not by any chance be a Zionist?
Oct 3, 2012 at 7:46 AM | Unregistered Commenterehswan
"[I]t is the only one of the nine that gets paid by investors instead of by the issuers of securities."

I didn't know this until now. It's weird to track the Graftocracy's machinations year after year and miss basic info like this. Watch and learn, I guess. In any event, this suit is further proof of the S.E.C.'s function as Stage IV fascist cancer. It won't be long now...

Cohan recently wrote a piece about JPM's gambling losses that was like a brickbat to a hornet's nest, judging by the comments it drew.

Oct 3, 2012 at 12:11 PM | Unregistered CommenterCheyenne
"SEC Sues The Only Rating Firm Not On Wall Street's Payroll"

More evidence that the Washington - Wall Street conspiracy is ongoing and will continue till China forecloses on the smoldering remains of the no longer, ("Greatest Country on Earth.")
Oct 3, 2012 at 12:53 PM | Unregistered CommenterSagebrush
The Bush41 cabal has the place wired. The CJ SECs and FTCs busted for self-indulgence on the job as much as 7 hours a day while failing to launch a single prosecution were kept on by Bush43 and kept on by The Lobobama, President Obama. Obama demands closer inspection, for the sake of the nation. As does Project Monarch deserve closer inspection for the sake of the nation. If you want your country to survive, get a load of this.

Compare the passive mannerisms of Francis Farmer on the 2 part video of "This is Your Life, Francis Farmer" sited on Youtube featuring the ex-talented singer/actress Ms. Farmer, railroaded into an asylum by her mother and manager because she 'wanted out'. And once locked up, her raged naturally increased. She was forced into a lobotomy. They cut her up.
See the large scars on the back of Obama's head.(Those are not lobotomy scars or from inner ear surgery, and they have yet to be explained. Obama may not know, or care where they came from.) Ms. Farmer discusses her operation. They destroyed her personality. This is no joke.

Communism is a tool of the Rothschild bank. Mao tse T'ung, who benefited greatly from the Rothschild support, was in Skull and Bones while at Yale. With a totally passive countenance from a lobotomy, so would Obama be a tool, as he is a tool, without any compassion or concern. The Rothschilds are that big, with massive news media ownership and control for semi-successful info-management. They have proven themselves also to be that treacherous and devoid of respect for nonwhite people for centuries. A life sized 'Risk!' game, with pain, sorrow, and blood. We goofed when we trusted freemason Ron Paul who ditched Americans for the third time once building another candidate was time passed. Freemasons swear allegiance to their 'Grand Patron'. The queen of England, Elizabeth II, has been this 'Grand Patron' for over twenty years. Before her, it was another British royal. Agents of this cabal are continuing their destruction of the American economy and nation. Other Anglophile groups are in participation. They swore from day one to get America back into the fold. Their progress, thus far, is unchecked since 9-11-2001. Thank 'The Patriot Act', written in preparation for 9-11's attack itself. The City of London is the 'Jewish Vatican' to many. The new 'World Court of the World' in Israel is festooned with freemasonic symbols. The NWO = The OWO.

A fellow worker was in Obama's class in high school in Honolulu. Obama was an undisciplined street punk,with attitude. The new Obama has no unrehearsed 'attitude'. His faux 'suave and debonair' manner is mechanical and misplaced. The affects of a lobotomy are subtle, but identifiable. Do not refer to Wikipedia regarding lobotomies. They are very incorrect on this definition and a lobotomy's affects. I referred to texts and journals at the University of Washington Medical School Library and Science Stacks to reach my conclusions about the President. Because of the affects of a lobotomy on its victim, my words are without malice towards president Obama, but not because I have had a lobotomy. I think they got him. Connecticut.1977-1979.
Oct 3, 2012 at 5:42 PM | Unregistered CommenterHoward T. Lewis III
Let no good deed go unpunished. "In a time of universal deceit, telling the truth is a revolutionary act" George Orwell
Oct 10, 2012 at 2:58 PM | Unregistered Commenterrobertsgt40
Wall Streets payroll is an efficient one. Which plays a vital role in England. Egan-Jones is the most aggressive and independent of all the ratings agencies, has been the lead agency in downgrading the U.S. twice in the past 18 months, and might just do it again if Congress doesn't get serious about annual $1.5 trillion deficits.
Jan 7, 2014 at 8:32 AM | Unregistered Commenteranthonycarter

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