Federal regulators announced that Egan-Jones Ratings Co and president, Sean Egan, filed official documents that exaggerated their expertise when it comes to credit ratings.  The SEC said that the documents shined light on a misrepresentation of how many firms they had rated based on credit and the number of years that they have been doing the research.

Furthermore, securities regulators said that Egan-Jones had “material misrepresentations and omissions” during July 2008 when the firm applied to be able to give firms credit ratings that would be credible.

The firm “falsely stated” that they had rated 150 ratings on firms that issued asset-backed securities as well as 50 governmental ratings.  According to Egan-Jones, they had maintained ratings since 1995 however the SEC discredits the firm saying that the ratings were not made known on the firm’s website or “another readily accessible means”.

Now the whole situation is a war with words as Mr. Egan says the SEC knew about the ratings at an earlier time.

This is certainly a blow to Egan-Jones’s credibility and customer base.  Competitors Moody’s Corporation (NYSE:MCO) and McGraw-Hill Companies, Inc (NYSE:MHP) will likely be able to issue the final blow to Egan-Jones as the firm will most certainly lose customers after this announcement by the SEC.

According to an article by JEANNETTE NEUMANN in the Wall Street Journal, the SEC had already given Egan-Jones the approval to rate some securities despite the fact that they were not completely sure on the accuracy of the ratings the firms gave.  The year before SEC said the firm had misled investors with their credibility (2008), the SEC had approved Egan-Jones to rate certain kinds of debt such as corporate bonds.

Now the issue turns to the SEC.  If they had had concerns about the firm’s accuracy of information, why did they go ahead and approve them to rate certain types of debt securities?  Now, they are coming out trying to protect investors by basically discrediting the firm.  Well which is it? As the securities regulators of the US, you must look out for the common investor from firms that aren’t reliable.

The bottom line is that there is something not right here.  As I said earlier, the Wall Street Journal reportedly said last week that the SEC approved Egan-Jones to rate some debt securities, knowing that the firm’s accuracy was iffy.  Now the SEC is saying that they have been essentially lying about how many securities that are rating and the duration.  More is to come of this hopefully soon so watch for any new updates on this case.