<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Jonathan Weil</p> <p>How's this for a timeline?</p> <p>In July 2011, Egan-Jones Ratings Co. became the first nationally recognized statistical rating organization to <a href="http://www.bloomberg.com/news/2011-07-18/egan-jones-cuts-u-s-rating-to-aa-on-spending-cut-concern-1-.html">downgrade</a> the U.S. below AAA. In April 2012, <a href="http://www.bloomberg.com/news/2012-04-26/sean-egan-s-big-mistake-was-seeking-u-s-government-halo.html">Egan-Jones cut the U.S. government's credit rating</a> an additional notch to AA from AA+.</p> <p>Later that month, the Securities and Exchange Commission's enforcement division <a href="http://www.sec.gov/news/press/2012/2012-75.htm">accused</a> Egan-Jones of securities-law violations related to errors in the company's 2008 application to expand its license as a nationally recognized rater. Last September, Egan-Jones downgraded the nation again, this time to AA-.</p> <p>Then today, the SEC <a href="http://www.sec.gov/news/press/2013/2013-7.htm">said</a> it reached a settlement with Egan-Jones, under which the company "agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO." The deal doesn't affect Egan-Jones's license to rate corporate debt.</p> <p>Maybe downgrading the U.S. had nothing to do with the SEC's decision to target Egan-Jones, which neither admitted nor denied the SEC's claims. Regardless, the chronology looks chilling. In essence, Egan-Jones was accused of "filling out forms wrong," as Jesse Eisinger <a href="http://dealbook.nytimes.com/2012/05/02/taking-on-the-little-guy-but-missing-the-bigger-ones/">wrote</a> in a New York Times column last May about the company and its outspoken leader, Sean Egan.</p> <p>It's curious that the SEC went after Egan-Jones -- a tiny shop that makes its money from selling subscriptions to investors -- but has given a free pass to the biggest credit raters, Standard &amp; Poor's and Moody's Investors Service, notwithstanding the dubious AAA ratings they assigned to thousands of garbage subprime mortgage bonds before the financial crisis. (Unlike S&amp;P and Moody's, Egan-Jones doesn't collect rating fees from issuers of securities.)</p> <p>Let all of this be a lesson to anyone else who asks regulators to formally recognize their opinions on certain subjects. The government one day might decide their views aren't fit for public consumption.</p> <p>(<a href="http://topics.bloomberg.com/jonathan-weil/">Jonathan Weil</a> is a Bloomberg View columnist. <a href="https://twitter.com/JonathanWeil">Follow him</a> on Twitter.)</p> </body> </html>