Egan-Jones: SEC probe will not affect independence

Reuters News
Posted: Apr 23, 2012 4:48 PM
Egan-Jones: SEC probe will not affect independence

By Daniel Bases and Luciana Lopez

NEW YORK (Reuters) - A U.S. Securities and Exchange investigation of credit ratings agency Egan-Jones will not affect the independence of the company's ratings, founder Sean Egan said on Monday.

"Our job is to get back to work and focus on providing timely, accurate ratings and research. This will not have any effect on the firm's independence or our commitment to call credit quality as we see it, regardless of issuer," Egan said.

U.S. securities regulators are expected to file administrative charges against Egan-Jones sometime this week. The SEC alleges the firm made material misstatements in a 2008 regulatory application, the company's lawyer confirmed last week.

"We vehemently disagree for a whole host of reasons and will contest these claims," Egan said in a conference call with reporters, who were prohibited from asking questions directly.

Instead, Egan spoke for less than 10 minutes answering emailed questions.

He said the SEC's action has to do with the firm's designation as a Nationally Recognized Statistical Rating Organization (NRSRO) for sovereign and structured financial product ratings.

"The application was reviewed and accepted by the SEC. We have updated that filing annually, each year, after 2008. The SEC is only questioning our initial filing in 2008 for sovereign and structured ratings, and they started questioning that probably in early 2011 or late 2010," Egan said.

Egan-Jones is among the smallest U.S.-recognized credit rating firms in an industry dominated by Moody's Corp, McGraw-Hill Cos Inc's Standard & Poor's and Fimalac SA's Fitch.

A 2011 SEC report said the firm only had five analysts and analyst supervisors on staff, compared with ratings company S&P, which had 1,345 analysts on staff.

In January, Bill Hassiepen, vice president and senior analyst at the Haverford, Pennsylvania-based firm told Reuters that Egan-Jones had about 15 people working on both sovereign and corporate ratings, globally.

Egan addressed concerns about staffing in his call.

"The SEC has not provided clear guidance and the counting of analysts which causes us to adopt a very conservative approach to interpreting the NRSRO form. We are well staffed to not only service our existing clients, but to grow and to continue issuing timely, accurate ratings," he said.

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The SEC's decision last week to file charges came after commissioners voted in a closed-door meeting.

The issues include allegedly misrepresenting the firm's rating experience, conflict-of-interest policy issues and a failure to keep certain books and records, people familiar with the matter told Reuters.

Egan said the firm has spent "significant resources" on compliance and improving its systems in many areas.

"We can say that as a percentage of revenues, we have far outspent the other firms on compliance. It has gotten to the point that the SEC's compliance demands about matters which do not affect the quality or accuracy of our ratings at all are very burdensome," he added.

(Editing by Chizu Nomiyama, Padraic Cassidy and Andre Grenon)