Egan-Jones

  • 22 Jan 2013 at 4:07 PM

At Long Last Egan-Jones Has Been Brought To Justice

The SEC’s press release touting its triumph over rebel-without-a-cause rating agency Egan-Jones gives just the slightest impression that it was written in embarrassment. A trope of SEC press releases is “[thing we are enforcing] is among the most important things in the whole wide universe”; this is hard to say with a straight face when the defendant is guilty “essentially, of filling out forms wrong,” as Jesse Eisinger put it last year. But two SEC enforcement bigwigs give it their best shot:

“Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “EJR and Egan’s misrepresentation of the firm’s actual experience rating issuers of asset-backed and government securities is a serious violation that undercuts the integrity of the SEC’s NRSRO registration process.”

Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Provisions requiring NRSROs to retain certain records and address conflicts of interest are central to the SEC’s oversight of credit rating agencies. EJR’s violations of these provisions were significant and recurring.”

To be clear what happened in the Egan-Jones case was, as we’ve discussed before:

  • In 2008, Egan-Jones told the SEC “we have issued 200 ratings and they are on the internet.”
  • A few months later, Egan-Jones corrected the number of ABS and muni ratings from 200 to 23.
  • The correct number was actually zero, as you could tell by looking at E-J’s website.
  • Four years later, the SEC noticed.

“‘Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies,’ said Robert Khuzami, Director of the SEC’s Division of Enforcement,” though not so essential that the SEC would get around to noticing admitted inaccuracy inside of four years.

So, I mean: don’t fill out forms wrong! Read more »

  • 24 Apr 2012 at 6:00 PM

Quo usque tandem abutere, Egan-Jones, patientia nostra?

Lawyers all know the old case in which a guy sued another guy over a dead fox that Guy A chased and Guy B caught. Who owns the dead fox?, the case asks. It’s hard to care. My professor asked the better question, which was: just how much was a dead fox worth? The answer, it turns out, is “significantly less than the amount you’d have to spend on lawyers to become a famous old case.” So why did they spend so much on lawyers? Unclear. But the moral of the story is that if you see a lawsuit over something really trivial, it’s probably about something else. My professor added, “usually a love triangle.”

So who is Sean Egan sleeping with? He is, of course, the president of Egan-Jones Ratings, which the SEC sued today over … well, the SEC complaint is amazing: Read more »

  • 19 Apr 2012 at 3:53 PM

Quis Custodiet Ipsos Egan-Joneses?

Let’s not stop there with the clichés.* Here’s a great one: “never attribute to malice that which can be adequately explained by stupidity.” In applied form: your model of all the AAA mortgage CDOs that were maybe not so AAA could be “ratings agencies were paid by banks so they were venal and corrupt and sold the banks good ratings on products they knew were bad.” Or it could be “ratings agencies created medium-dumb criteria to make a thing be AAA, and bankers who were smarter than medium-dumb arbed those criteria to make more things be AAA than should have been AAA.” The incentives model has good economic theory behind it, and some suggestive evidence; the stupidity model has that lovely cliché but also some evidence, about which more later.

But first hilarious contrarian ratings agency Egan-Jones is in trouble: Read more »

Three weeks ago, Egan-Jones Ratings Co. downgraded America. Almost no one paid attention. “S&P’s downgrade was on the front page of every newspaper,” said Sean Egan, president of the Haverford, Pa., ratings firm, which has been issuing ratings since 1995. Mr. Egan’s disappointment that Standard & Poor’s rattled the world with its Friday-night rating cut on long-term U.S. government debt to double-A-plus, from triple-A, while his identical move was essentially ignored, is a sign of the grip on the debt-ratings industry held by its three giants. [WSJ, earlier]