Securities and Exchange Commission charges Egan-Jones Ratings Company and CEO Sean Egan with Conflict of Interest Violations and Egan-Jones to pay $1.7 Million to settle case

The Securities and Exchange Commission has charged Haverford, PA-based Egan-Jones Ratings Company, a nationally recognized statistical rating organization (NRSRO) registered with the Commission in certain ratings classes, with violating conflict of interest provisions. The SEC also charged the company’s founder and chief executive officer, Sean Egan, with causing certain of those violations.

The SEC’s order https://www.sec.gov/litigation/admin/2022/34-95127.pdf finds that, in 2019, Egan, who at the time headed Egan-Jones’s ratings group, became involved in business and marketing activities concerning a client and was influenced by sales and marketing considerations while participating in determining a credit rating for that client, which created a prohibited conflict of interest. The order finds that by issuing and maintaining a rating for the client under those circumstances, Egan-Jones violated the SEC’s NRSRO conflict of interest rules and, further, that Egan caused the company’s violations. 

The SEC’s order also finds that, in 2018, Egan-Jones violated another conflict of interest provision 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. Finally, the order finds 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.”

Without admitting or denying the SEC’s findings, Egan-Jones agreed to settle the matter by paying a $1.7 million penalty and more than $146,000 in disgorgement and interest. It 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.  Separately, and also without admitting or denying the SEC’s findings, Egan agreed to pay a $300,000 penalty to settle the SEC’s charges against him. 

The SEC’s investigation was conducted by Greg Hillson and Avron Elbaum, and supervised by Peter Rosario and Yuri B. Zelinsky. Dean M. Conway of the Enforcement Division’s Trial Unit and staff of the SEC’s Office of Credit Ratings assisted with the investigation.

JEFFREY NEWMAN, A FORMER PROSECUTOR IS A WHISTLEBLOWER LAWYER WITH THE FIRM NEWMAN & SHAPIRO WHO HANDLES SECURITIES AND EXCHANGE COMMISSION WHISTLEBLOWER CASES AS WELL AS FALSE CLAIMS ACT CASES NATIONWIDE. IF YOU HAVE INFORMATION ABOUT SECURITIES VIOLATIONS RELATING TO RATING COMPANIES OR PUBLICLY TRADED COMPANIES YOU MAY REACH HIM AT 617-823-3217 OR AT JNEWMAN@NEWMANSHAPIRO.COM