In re EGAN-JONES RATINGS

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 95127 / June 21, 2022 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-20902 
 
 
In the Matter of 
 
EGAN-JONES RATINGS 
COMPANY and SEAN EGAN,  
 
Respondents. 
 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTIONS 15E(d) AND 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934, 
MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 
 
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15E(d) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”), against Egan-Jones Ratings Company and Sean Egan (“Respondents”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondents have submitted Offers 
of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings  
herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to 
Sections 15E(d) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing 
Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
 
 

 
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III. 
 
 On the basis of this Order and Respondents’ Offers, the Commission finds
1
 that:  
 
Summary 
 
1. These proceedings arise out of violations of the securities laws, including 
provisions intended to curb potential conflicts of interest at credit rating agencies, by Egan-Jones 
Ratings Company (“EJR”), a Nationally Recognized Statistical Rating Organization 
(“NRSRO”).  Specifically, EJR violated Rule 17g-5(c)(8)(i) of the Exchange Act by issuing and 
maintaining a credit rating for a client where Sean Egan, EJR’s founder and sole owner, had 
participated in determining the credit rating at issue and engaged in sales and marketing activities 
with respect to that client.  Because Egan had been influenced by sales or marketing 
considerations at the time that he participated in determining the credit rating, EJR also violated 
Rule 17g-5(c)(8)(ii) of the Exchange Act.  Egan caused EJR’s violation of Rules 17g-5(c)(8)(i) 
and (ii).  
2. EJR also violated Rule 17g-5(c)(1) of the Exchange Act, which is a conflict-of-
interest rule that prohibits an NRSRO from issuing or maintaining a credit rating solicited by a 
person that, in the most recently ended fiscal year, provided the NRSRO with net revenue 
equaling or exceeding ten percent of the total net revenue of the NRSRO for the fiscal year.   
3. EJR also failed to establish, maintain, and enforce policies and procedures 
reasonably designed to manage conflicts of interest, in violation of Section 15E(h)(1) of the 
Exchange Act. 
4. An order issued by the Commission on January 22, 2013 (the “2013 Order”)
2
 
revoked EJR’s NRSRO registration for rating the classes of issuers of (a) asset-backed securities 
and (b) government, municipal, and foreign government securities, and also ordered EJR and 
Egan to cease and desist from committing or causing any violations of various securities laws.  
By rating two asset-backed securities and two municipal securities in 2017 and 2018 and making 
statements indicating that it was a registered NRSRO, but without prominently disclosing that 
the ratings in such ratings classes were not issued or maintained by an NRSRO that was 
registered to issue ratings in such classes, EJR violated Section 15E(f)(2) of the Exchange Act. 
Respondents 
 
5. Egan-Jones Ratings Company is a privately owned credit rating agency 
                                                 
1
  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  
 
2
  In re Egan-Jones Ratings Co., et al., Exch. Act Rel. No. 68703 (Jan. 22, 2013) (settled order).   
 

 
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incorporated in Delaware and headquartered in Haverford, Pennsylvania.  On December 21, 
2007, the Commission approved EJR’s application to become registered as an NRSRO for three 
rating classes: financial institutions, insurance companies, and corporate issuers.  On December 
4, 2008, the Commission approved EJR’s application for registration as an NRSRO for two 
additional rating classes: issuers of asset-backed securities (“ABS”) and issuers of government 
securities, municipal securities, or securities issued by a foreign government.  
6. Sean Egan, age 64, is the founder and chief executive officer of EJR.  Egan is, 
and during the relevant time was, the sole shareholder of EJR.  During the relevant time, Egan 
also was EJR’s president, the head of EJR’s ratings group, and, other than the period from 
August 21, 2018 to April 29, 2019, the chairperson of EJR’s board of directors.   
Facts 
 
A. EJR and Egan are Subject to a Prior Cease-and-Desist and Administrative 
Order Issued by the Commission.  
7. The 2013 Order found that EJR willfully violated Sections 15E(a)(1), 
15E(a)(1)(B)(ix), 15E(a)(1)(C), 15E(b)(2), 15E(h)(1), and 17(a) of the Exchange Act and Rules 
17g-1(a), 17g-1(b), 17g-1(f), 17g-2(a)(2), 17g-2(a)(6), 17g-2(b)(2), 17g-2(b)(7), and 17g-5(c)(2), 
and that Egan willfully made, or caused EJR to make, material misstatements in its Form 
NRSRO; and caused EJR’s violations of Sections 15E and 17(a) of the Exchange Act and Rules 
17g-1, 17g-2, and 17g-5 thereunder.  The 2013 Order also required EJR to cease and desist from 
committing or causing violations of Section 15E(h)(1) and Rule 17g-5, and Egan to cease and 
desist from committing or causing any violations of Rule 17g-5. 
8. The 2013 Order revoked EJR’s NRSRO registrations for the classes of (a) issuers 
of asset-backed securities and (b) issuers of government, municipal and foreign government 
securities, and barred Egan from association with any NRSRO registered in those classes, with a 
right to reapply for registration and reentry after eighteen months.  It further ordered EJR to 
disclose prominently that its ratings of asset-backed and government securities were not issued 
or maintained by a registered NRSRO. 
B. EJR Violated, and Egan Caused EJR’s Violation of, Rules 17g-5(c)(8)(i) and (ii) 
of the Exchange Act. 
9. The Commission adopted Rule 17g-5(c)(8) pursuant to the Dodd-Frank Act.  In 
the wake of the 2008 financial crisis, Congress mandated that the Commission prescribe rules to 
improve the regulation of NRSROs.  Congress specifically found that “credit rating agencies face 
conflicts of interest that need to be carefully monitored.”  Dodd-Frank § 931.  Accordingly, the 
statute directed the Commission to “issue rules to prevent the sales and marketing considerations 
of a [NRSRO] from influencing the production of ratings by the [NRSRO].”  Dodd-Frank § 
932(a), codified at 15 U.S.C. § 78o-7(h)(3)(A).   
10. The Commission adopted Rule 17g-5(c)(8) for the purpose of insulating rating 

 
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analysts from business pressures by separating rating agencies’ business-development function 
from their analytical  function (that is, the function of determining or monitoring a credit rating 
or approving procedures or methodologies used for determining the credit rating).  The rule 
states that an NRSRO “is prohibited from having the following conflicts of interest relating to 
the issuance or maintenance of a credit rating as a credit rating agency . . . . (8) The [NRSRO] 
issues or maintains a credit rating where a person within the [NRSRO] who participates in 
determining or monitoring the credit rating, or developing or approving procedures or 
methodologies used for determining the credit rating, including qualitative and quantitative 
models, also: (i) Participates in sales or marketing of a product or service of the [NRSRO] or a 
product or service of an affiliate of the [NRSRO]” or “(ii) is influenced by sales or marketing 
considerations.”   
11. According to the Commission’s adopting release, Rule 17g-5(c)(8)(i) “is designed 
to address situations in which, for example, individuals within an NRSRO who engage in 
activities to sell products and services (both ratings-related and non-ratings-related) of the 
NRSRO or its affiliates could seek to influence a specific credit rating to favor an existing or 
prospective client . . . .”  Nationally Recognized Statistical Rating Organizations, Final Rule, 79 
Fed. Reg. 55,078, 55,108 (Sept. 15, 2014). 
12. Rule 17g-5(c)(8)(ii) was intended to “curb potential conflicts of interest related to 
‘rating catering’ practices” and “promote the integrity and quality of credit ratings to the benefit 
of their users.”  Id. at 55,092.  The Commission’s adopting release explained that “there are a 
number of possible channels of influence” by sales or marketing considerations, including clients 
“who pressure analysts to produce inflated credit ratings to retain their business” or “managers 
who are not involved in sales and marketing activities but may seek to pressure analysts to 
produce inflated credit ratings to increase or retain the NRSRO’s market share.”  Id. at 55,110.   
13. The Commission further explained that the prohibition against those participating 
in a credit rating from being influenced by sales or marketing considerations is “an absolute 
prohibition.”  Id. at 55,108.   
EJR’s Procedure for Determining Ratings 
14. In light of the requirement that credit rating analysts be insulated from business 
pressures, EJR’s policies and procedures required that the firm’s ratings group be separated from 
the firm’s business and marketing group.  All business matters were required to be handled by a 
client relationship manager in the firm’s business and marketing group; members of the ratings 
group were permitted to discuss only rating matters with clients and were prohibited from 
discussing, negotiating, or arranging fees or engaging in other sales and marketing activities. 
15. If a client requested a private rating from EJR, a member of EJR’s business and 
marketing group would convey that request to EJR’s ratings analysts, who would determine their 
recommended rating for a given transaction.  EJR would convene a Ratings Review Committee 
(“RRC”) to evaluate the proposed rating and vote on it.  An RRC consisted of (1) the presenting 
analyst, who led the ratings team that proposed the rating; and (2) at least two voting members, 
one of whom also could serve as the committee’s chairperson.  The presenting analyst was not 

 
 5 
allowed to vote.  According to EJR's rating policies and procedures, a majority of the voting 
members of the RRC needed to vote in support of a proposed rating before it could be issued by 
EJR. 
Egan Caused EJR’s Violation of Rule 17g-5(c)(8)(i) and (ii) 
16. On July 11, 2019, Client A engaged EJR to issue a rating for a real estate 
transaction.  Although EJR’s typical turnaround time for that type of rating was approximately 
five days, on July 23, EJR discovered that the client relationship manager for Client A had failed 
to submit the ratings request to the ratings group. 
17. On July 31, Client A emailed EJR’s client relationship manager to ask about the 
status of the rating and the reason for the delay.  In those emails to EJR, Client A complained 
that the delay was “beyond ridiculous” and demanded that the rating be issued that day by 5:00 
p.m.  Client A also threatened to cancel the pending rating request and stop doing business with 
EJR. 
18. Egan — who at the time was EJR’s president and the head of EJR’s ratings 
group — spoke to the client relationship manager and stated that Client A was an important 
client for EJR and that he was concerned that EJR could lose Client A’s business.  
19. Later on July 31, Egan called Client A and promised that EJR would provide the 
requested rating later that day.  Egan also told Client A that the client relationship manager was 
being replaced.  That communication violated EJR’s policies, which stated that “communication 
between the Ratings group and the clients shall only relate to the rating matters and not involve 
sales or marketing matters nor being influenced by the sales and marketing matters.”  The client 
relationship manager, ultimately, was taken off the account for Client A. 
20. At around 4:30 p.m. on July 31, a half hour before Client A’s deadline, EJR 
convened an RRC by telephone to vote on a proposed rating for Client A.  Egan and a senior EJR 
analyst (“Analyst 1”) were the voting members of the committee, with Analyst 1 serving as the 
chairperson.  The presenting analyst on the committee (the “Presenting Analyst”) recommended 
a rating of BBB+ for the transaction.  However, during the RRC meeting, Analyst 1 requested 
certain information about the transaction that she believed was essential for determining an 
accurate rating.  Because EJR did not have the information that she sought, Analyst 1 abstained 
from voting on the proposed rating.  Without a majority of voting members in support, the 
proposed rating was not approved by the RRC.  
21. At approximately 5:13 p.m., Client A sent Egan an email stating: “We are passed 
[sic] 5pm.  Where is the rating?” 
22. At approximately 5:17 p.m., Egan became the chairperson of the RRC.  Analyst 1 
was replaced with another EJR analyst (“Analyst 2”) as the second voting member.   
23. At 5:21 p.m., Egan and Analyst 2 voted to approve the proposed BBB+ rating, 
which EJR then issued.   

 
 6 
24. Client A, however, was displeased with the BBB+ rating, and emailed the 
Presenting Analyst asking why the rating only was BBB+ and noted that EJR had recently rated 
another, similar transaction for Client A two notches higher.  When the Presenting Analyst 
attempted to explain the reason for the BBB+ rating, Client A replied, “Surely you jest.  I 
recommend you go back and verify your models.  You must have missed something.”  Client A 
then forwarded those emails to Egan and asked Egan to call to discuss the rating.   
25. At that time it was EJR’s policy that any client who disagreed with an EJR rating 
would be asked to “provide written support for their objection including any relevant materials” 
for review by the RRC.  Client A, however, provided no written support for its purported 
objections to the BBB+ rating, and EJR did not ask Client A for such written support. 
26. On August 6 and August 7, 2019, Client A emailed Egan asking him whether 
there was any “update” on the rating.   
27. Around this time, Egan, in his capacity as a member of the prior RRC that had 
approved the BBB+ rating on July 31, directed the Presenting Analyst to develop a new rating 
tool in light of  Client A’s concerns about the BBB+ rating.  On August 12, EJR convened 
another RRC, with Egan as a voting member and an analyst who had not participated in either of 
the two prior RRCs as the RRC chair and second voting member (“Analyst 3”).  Neither Analyst 
1 nor Analyst 2 was invited to serve on this new RRC. 
28. The Presenting Analyst again proposed a rating of BBB+.  Notwithstanding the 
Presenting Analyst’s recommendation, and although EJR had received no substantive 
information from Client A to support a higher rating, Egan and Analyst 3, relying on the new 
rating tool referenced above, voted to increase the rating one notch to A-.   
29. On August 16, EJR sent Client A the upgraded rating.  After receiving the 
upgraded rating, a manager at Client A emailed his team at Client A, “Finally got the A- 
rating....”   
30. Upon learning over a month later that two RRCs with different voting members 
had been convened to consider Client A’s rating, EJR’s Designated Compliance Officer emailed 
another EJR employee: “I don’t think it’s appropriate to change RRC members when 
reconvening to address a[] [client’s] appeal” unless approved by compliance, since doing so may 
give rise to a claim of “shuffling people around for a higher rating.”  
31. Under these circumstances, Egan, by advising Client A that EJR’s client 
relationship manager was being replaced and informing Client A when the rating would be 
issued, effectively assumed the role of EJR’s client relationship manager with Client A.  After 
doing so, Egan — who knew that Client A was important to EJR and understood that potential 
future business with Client A was at risk — rejected the concerns and recommendations of 
senior EJR analysts in ultimately approving the A- rating for Client A.  Egan’s continued 
participation in and direction of the rating process as to Client A — after becoming involved in 
business and marketing activities as to Client A and being influenced by sales and marketing 

 
 7 
considerations — constituted a prohibited conflict of interest. 
32. By issuing and maintaining the rating for Client A under the circumstances 
described above, EJR violated Rule 17g-5(c)(8)(i) and (ii).  By violating the rule, EJR violated 
the 2013 Order.  Egan caused EJR’s violations of Rule 17g-5(c)(8)(i) and (ii).  By causing EJR’s 
violations, Egan violated the 2013 Order. 
C. EJR Violated Rule 17g-5(c)(1) of the Exchange Act. 
33. Rule 17g-5(c)(1) of the Exchange Act (the “Ten Percent Rule”) prohibits an 
NRSRO from issuing or maintaining a credit rating solicited by a person that, in the most 
recently ended fiscal year, provided the NRSRO with net revenue equal to or exceeding ten 
percent of the total net revenue of the NRSRO for the fiscal year.
3
  The adopting release for Rule 
17g-5(c)(1) explains that a person who provides ten percent or more of an NRSRO’s net revenue 
would be “in a position to exercise substantial influence on the NRSRO,” and that it would “be 
difficult for the NRSRO to remain impartial, given the impact on the NRSRO’s income if the 
person withdrew its business.”  Oversight of Credit Rating Agencies Registered as Nationally 
Recognized Statistical Rating Organizations; Final Rule, 72 Fed. Reg. 33,564, 33,598 (June 18, 
2007).   
34. By August 2017, EJR was aware, based on internal revenue forecasts, that a 
particular client (Client B) might contribute more than ten percent of EJR’s net revenue by the 
end of the fiscal year.  EJR continued to provide rating services and accept payments from Client 
B through the end of 2017. 
35. As of December 31, 2017, Client B accounted for 13.9 percent of EJR’s year-to-
date net revenue. 
36. On March 26, 2018, EJR submitted its independently audited 2017 financial 
statements and the associated unaudited financial revenue report.  In those financial statements, 
EJR recorded a $538,000 loss contingency, which EJR described as “excess revenue refundable” 
and classified as a current liability on its balance sheet as of December 31, 2017.  The loss 
contingency purported to offset the exact amount by which revenues from Client B exceeded ten 
percent of EJR’s net revenues for 2017.   
37. That loss contingency, however, was not accrued in accordance with generally 
accepted accounting principles (“GAAP”) because EJR failed to satisfy the conditions precedent 
for accrual of a loss contingency under ASC 450-20-25-2.  EJR lacked a reasonable basis for 
believing that it was probable that (a) a claim would be asserted by or concerning Client B or (b) 
                                                 
3
  As explained in the Ten Percent Rule Final Release, “net revenue” is “revenue earned by the ... 
NRSRO for any type of service or product, regardless of whether related to credit rating services, 
and net of any rebates and allowances paid or owed to the person by the ... NRSRO.”  Oversight 
of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations; 
Final Rule, 72 Fed. Reg. 33,564, 33,580 (June 18, 2007). 

 
 8 
the outcome of any such claim would be unfavorable.  The amount of any unfavorable outcome 
also was not reasonably estimable.   
38. Notwithstanding that Client B had contributed more than ten percent of EJR’s net 
revenues in 2017, EJR continued to issue and maintain ratings for Client B in 2018, issuing at 
least thirty-nine new ratings for Client B from January through May 2018.  During that time, EJR 
also continued to surveil and maintain ratings that it previously had issued for Client B.   
39. On May 25, 2018, EJR ceased issuing new ratings or surveillance ratings for 
Client B.  However, at least until December 2018, EJR continued to maintain ratings for Client B 
that it had previously issued.   
40. By continuing to issue and maintain ratings for Client B in 
2018 — notwithstanding that Client B had contributed more than ten percent of EJR’s net 
revenue in 2017 — EJR violated Exchange Act Rule 17g-5(c)(1) and, by violating the rule, EJR 
also violated the 2013 Order.   
D. EJR Failed to Establish, Maintain, or Enforce Policies and Procedures 
Reasonably Designed to Manage Conflicts of Interest. 
41. Section 15E(h)(1) of the Exchange Act requires NRSROs to “establish, maintain, 
and enforce written policies and procedures reasonably designed, taking into consideration the 
nature of the business of such nationally recognized statistical rating organization and affiliated 
persons and affiliated companies thereof, to address and manage any conflicts of interest that can 
arise from such business.”  
42. EJR had in place during the relevant time certain policies and procedures intended 
to address the Ten Percent Rule.  However, at least throughout 2017 and early 2018, those 
policies and procedures were neither reasonably designed nor enforced.  EJR did not have any 
written process or procedure outlining what steps EJR would take if a client was projected to or 
did contribute ten percent or more of EJR’s net revenue by the end of a given fiscal year.   
43. EJR also had established certain policies and procedures that were designed to 
prevent someone who had participated in determining a credit rating from also participating in 
sales or marketing or being influenced by sales and marketing considerations with respect to the 
rating.  EJR failed to enforce those policies and procedures.  With respect to the rating EJR 
provided for Client A, EJR failed to enforce its policies and procedures and, as a result, did not 
prevent the issuance and maintenance of a rating that Egan had participated in determining at a 
time when he also participated in sales or marketing and was influenced by sales or marketing 
considerations.   
44. As a result, EJR violated Section 15E(h)(1) of the Exchange Act.  By violating the 
Section 15E(h)(1), EJR also violated the 2013 Order. 

 
 9 
E. EJR Violated Section 15E(f)(2) of the Exchange Act. 
45. Section 15E(f)(2) of the Exchange Act makes it unlawful for any rating agency 
that is not registered as an NRSRO to state that it is an NRSRO.  At all relevant times, EJR and 
Egan were subject to the 2013 Order which, among other things, revoked EJR’s registration to 
rate issuers of asset-backed and government securities as an NRSRO and required EJR to 
disclose prominently that ratings in those rating classes are not issued or maintained by a 
registered NRSRO.   
46. Despite not being registered as an NRSRO for rating issuers of ABS and 
government securities, in 2017 and 2018, EJR rated two ABS and two municipal securities.  In 
its report for each of the ratings, EJR stated that it used a methodology described in its Form 
NRSRO, without prominently disclosing in its reports that those ratings were not issued or 
maintained by an NRSRO registered to issue ratings in those classes.  The methodologies 
required to be described in Form NRSRO are those that are used to determine credit ratings in 
ratings classes in which an NRSRO is registered.   
EJR’s Rating of ABS 
47. In late 2016, Client C engaged EJR to rate two tranches of a transaction involving 
the financing of certain receivables.  On January 19, 2017, EJR provided Client C with an 
indicative rating on the transaction, but at the same time questioned whether the transaction 
might constitute an ABS.  EJR asked Client C to provide it with the transaction documents to 
evaluate whether the transaction was an ABS.  
48. In February and March 2017, EJR issued two more indicative ratings on the 
transaction.  EJR informed Client C at this time that Client C “might be bumping into structured 
finance if [it] plan[s] to structure with various tranche [sic].” 
49. Based on a term sheet and other materials received from Client C, on May 3, 
2017, EJR issued the final rating for two tranches of Client C’s transaction in the corporate 
ratings class, in which EJR was registered as an NRSRO, rather than the ABS class in which 
EJR’s registration had been revoked.  EJR issued those ratings notwithstanding that Client C had 
not provided the requested transaction documents and the question of whether the transaction 
was an ABS remained unresolved at that time.  Moreover, the final ratings had been reviewed by 
a EJR senior analyst and voted on by the RRC without any documented discussion concerning 
the structure or proper rating class of the transaction.  In its rating report, EJR stated that it used 
a methodology described in its Form NRSRO, but failed to disclose prominently that the rating 
had not been issued by an NRSRO registered to issue ratings for the ABS class. 
50. In August 2017, Client C requested an updated rating letter from EJR and 
provided EJR with certain transaction documents.  On or around September 6, based on advice 
from its outside counsel, EJR determined that the two ratings in May 2017 involved an ABS.   
51. EJR notified Client C of its determination but did not withdraw the May 2017 
NRSRO rating.  Instead, EJR told Client C that it would need to restructure the transaction as a 

 
 10 
loan or as a note from an operating company in order to receive an updated NRSRO rating in the 
corporate ratings class.  Client C subsequently modified the terms of the transaction such that the 
transaction was not classified as an ABS. 
EJR’s Rating of Municipal Securities 
52. In October 2017, Client D requested that EJR provide a final rating for a bond 
referred to as a Property Assessed Clean Energy (“PACE”) bond, which would finance a 
redevelopment and energy-efficiency improvement of a certain property.  
53. Client D’s requests sent to EJR included an excerpt, in bold type, that identified 
the bond’s CUSIP as a “Municipal CUSIP” (emphasis added).  
54. The ratings team that generated the rating was unfamiliar with the PACE 
program, and conducted general internet research on the bond.  During the preparation of the 
ratings report, an EJR analyst questioned whether the bond was a municipal security, but was 
told by her supervisor that it was not.  The ratings team consequently treated the bond as a 
corporate security rather than as a municipal security.   
55. On December 27, EJR issued a final rating for the transaction.  In its rating report, 
EJR stated that it used a methodology described in its Form NRSRO, but failed to disclose 
prominently that the rating had not been issued by an NRSRO registered to issue ratings for 
issuers of government, municipal, or foreign government securities. 
56. On January 11, 2018, Client D asked EJR to provide a final rating for another, 
similar PACE bond.  Documents for that transaction also included an excerpt that identified, in 
bold type, the bond’s CUSIP as a “Municipal CUSIP” (emphasis added).   
57. Nevertheless, on January 26, EJR issued a final rating for the transaction.  In its 
rating report, EJR stated that it used a methodology described in its Form NRSRO, but failed to 
disclose prominently that the rating had not been issued by an NRSRO registered to issue 
ratings for issuers of government, municipal, or foreign government securities. 
58. By rating two asset-backed securities and two municipal securities in 2017 and 
2018 — while making statements indicating that it was a registered NRSRO, but without 
prominently disclosing that the ratings in such ratings classes were not issued or maintained by 
an NRSRO that was registered to issue ratings in such classes — EJR violated Section 15E(f)(2) 
of the Exchange Act and the 2013 Order. 

 
 11 
Violations 
59. As a result of the conduct described above, EJR willfully
4
 violated Rule 17g-
5(c)(8)(i) of the Exchange Act, which prohibits NRSROs from issuing or maintaining a credit 
rating where a person within the NRSRO who participates in determining or monitoring the 
credit rating, or developing or approving procedures or methodologies used for determining the 
credit rating, including qualitative and quantitative models, also participates in sales or marketing 
of a product or service of the NRSRO or an affiliate of the NRSRO.   
60. As a result of the conduct described above, EJR willfully violated Rule 17g-
5(c)(8)(ii) of the Exchange Act, which prohibits NRSROs from issuing or maintaining a credit 
rating where a person within the NRSRO who participates in determining or monitoring the 
credit rating, or developing or approving procedures or methodologies used for determining the 
credit rating, including qualitative and quantitative models, also is influenced by sales or 
marketing considerations.   
61. As a result of the conduct described above, Egan caused EJR’s violations of Rules 
17g-5(c)(8)(i) and (ii) of the Exchange Act. 
62. As a result of the conduct described above, EJR willfully violated Rule 17g-
5(c)(1) of the Exchange Act, which prohibits an NRSRO from issuing or maintaining a credit 
rating solicited by a person that, in the most recently ended fiscal year, provided the NRSRO 
with net revenue equal to or exceeding ten percent of the total net revenue of the NRSRO for the 
fiscal year. 
63. As a result of the conduct described above, EJR willfully violated Section 
15E(h)(1) of the Exchange Act, which requires an NRSRO to establish, maintain, and enforce 
written policies and procedures reasonably designed, taking into consideration the nature of the 
business of such NRSRO and affiliated persons and affiliated companies thereof, to address and 
manage any conflicts of interest that can arise from such business. 
64. As a result of the conduct described above, EJR willfully violated Section 
15E(f)(2) of the Exchange Act, which prohibits a credit rating agency that is not registered as an 
NRSRO under that section to state that such credit rating agency is a registered NRSRO. 
                                                 
4
  “Willfully,” for purposes of imposing relief under Section 15E(d)(1) of the Exchange Act, 
“‘means no more than that the person charged with the duty knows what he is doing.’”  
Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 
977 (D.C. Cir. 1949)).  There is no requirement that the actor “also be aware that he is violating 
one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  The decision in The 
Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently 
structured statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 
2019) (setting forth the showing required to establish that a person has “willfully omit[ted]” 
material information from a required disclosure in violation of Section 207 of the Advisers Act). 

 
 12 
Disgorgement 
 
65. The disgorgement and prejudgment interest ordered in paragraph IV.E is 
consistent with equitable principles, does not exceed EJR’s net profits from its violations, and 
returning the money to EJR would be inconsistent with equitable principles.  Therefore, in these 
circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable alternative.  
The disgorgement and prejudgment interest ordered in paragraph IV.D shall be transferred to the 
general fund of the U.S. Treasury, subject to Section 21F(g)(3) of the Exchange Act.   
Undertakings 
 
 Respondent EJR has undertaken to: 
 
66. Within 90 days of the entry of this Order, conduct a training program addressing 
the Commission’s conflict of interest rules, including but not limited to the prohibitions set forth 
in Rules 17g-5(c)(8) and 17g-5(c)(1) of the Exchange Act.  This training program shall educate 
attendees regarding applicable rules and regulations and relevant policies and procedures.  This 
training shall also explain how employees can raise concerns and the avenues for doing so, 
including internally and directly with the SEC through the Whistleblower Program.  Attendance 
at this training program will be mandatory for all current EJR personnel, each of whom shall 
certify in writing that he or she attended this program.  Within 90 days of the entry of this Order, 
EJR also will create policies or procedures to ensure that this training is provided to all new 
employees in their first fourteen days of employment, and repeated annually for all employees.  
As part of this policy or procedure, both new employees and recipients of the annual training 
shall attest in writing that they attended the training.  EJR or any successor will maintain the 
training program for not less than two years after entry of this order.  EJR will certify, through its 
Designated Compliance Officer, that it has conducted the above-described training program and 
has created the above-described policies and procedures. 
67. Prepare and submit revenue reports through fiscal year 2024 as follows:  
a. For each ratings client that provided EJR with at least eight percent of EJR’s 
net revenue (as defined in the note to Rule 17g-3(a)(5)) as of the end of each 
fiscal quarter, a report stating: (i) EJR’s year-to-date revenue, by client; (ii) 
EJR’s total projected annual net revenue; (iii) EJR’s total year-to-date net 
revenue ; and (iv) the name of each client that accounts for eight percent or 
more of EJR’s year-to-date net revenue or is projected to account for eight 
percent or more of EJR’s year-end net revenue and the percentage share of 
such net revenue for each listed client. 
b. For each report, the Designated Compliance Officer of EJR shall certify in 
writing that the information in the report has been fairly presented in all 
material respects and that all projections were prepared in good faith using 
assumptions believed by such person to be reasonable. 

 
 13 
c. Within twenty calendar days after the end of each fiscal quarter 
commencing with the third quarter of each fiscal year, EJR shall submit the 
reports and certifications specified above to the Director, Office of Credit 
Ratings, U.S. Securities and Exchange Commission, 100 F Street, N.E., 
Washington, DC 20549. 
68. Within 60 days from the entry of this Order, retain the services of an independent 
consultant that is not unacceptable to the staff of the U.S. Securities and Exchange Commission’s 
Division of Enforcement and Office of Credit Ratings (“Staff”).  The Independent Consultant’s 
compensation and expenses shall be borne exclusively by EJR. 
a. EJR shall provide a copy of the engagement letter to the Staff detailing the 
Independent Consultant’s responsibilities. 
b. EJR shall require that the Independent Consultant perform the following 
duties: 
i. Conduct a comprehensive review of EJR’s written policies and 
procedures intended to address and manage conflicts of interest 
(“EJR’s Policies and Procedures”);  
ii. Assess whether EJR’s Policies and Procedures are reasonably 
designed, taking into consideration the nature of EJR’s business and 
affiliated persons and affiliated companies thereof, to address and 
manage any conflicts of interest that can arise from such business;   
iii. Make recommendations with respect to EJR’s Policies and Procedures 
and their implementation and enforcement; 
iv. Submit, within 180 days of the entry of this order, a written and dated 
report of its findings and recommendations (the “Initial Report”) to 
EJR’s board of directors, EJR senior management, and the Staff.  EJR 
and its employees shall have no input into the Independent 
Consultant’s report, other than to provide information and other 
cooperation requested by the Independent Consultant.  The Initial 
Report shall (a) set forth the Independent Consultant’s findings about 
the adequacy of EJR’s Policies and Procedures and (b) if necessary, 
make recommendations regarding how EJR should modify or 
supplement its Policies and Procedures;  
v. No sooner than six months from EJR’s receipt of the Initial Report, 
require the Independent Consultant to conduct a review of EJR’s 
implementation of the Independent Consultant’s recommendations 
discussed above; and 
vi. Within eight months from EJR’s receipt of the Initial Report, submit a 

 
 14 
written final report (“Final Report”) to EJR’s board of directors, EJR 
senior management, and the Staff.  The Final Report shall describe 
the review made of EJR’s implementation of the Independent 
Consultant’s recommendations and describe how EJR has 
implemented and is complying with the Independent Consultant’s 
recommendations. 
c. EJR shall cooperate fully with the Independent Consultant, including 
providing the Independent Consultant with access to the files, books, 
records, and personnel of EJR as reasonably requested for the above-
described reviews, and obtaining the cooperation of employees or other 
persons under EJR’s control.  
d. EJR will work with the Independent Consultant to implement the 
Independent Consultant’s recommendations, and where necessary, will 
consult with the Staff on any recommendations that EJR considers unduly 
burdensome or would have difficulty implementing for other reasons.  
e. EJR shall require the Independent Consultant to report to the Staff on his/her 
activities as the Staff may reasonably request. 
f. To ensure the independence of the Independent Consultant, EJR shall not 
have the authority to terminate the Independent Consultant without prior 
written approval of the Staff and shall compensate the Independent 
Consultant and persons engaged to assist the Independent Consultant for 
services rendered pursuant to this Order at their reasonable and customary 
rates. 
g. EJR shall expend sufficient funds to permit the Independent Consultant to 
discharge all of his/her duties.  EJR shall permit the Independent Consultant 
to engage such assistance, clerical, legal or expert, as necessary and at a 
reasonable cost, to carry out his/her activities, and the cost, if any, of such 
assistance shall be borne exclusively by EJR. 
h. EJR shall require the Independent Consultant to enter into an agreement that 
provides that for the period of engagement and for a period of two years 
from completion of the engagement, the Independent Consultant shall not 
enter into any employment, consultant, attorney-client, auditing or other 
professional relationship with EJR, or any of its present or former affiliates, 
directors, officers, employees, or agents acting in their capacity.  The 
agreement will also provide that the Independent Consultant will require 
that any firm with which he/she is affiliated or of which he/she is a member, 
and any person engaged to assist the Independent Consultant in performance 
of his/her duties under this Order shall not, without prior written consent of 
the Director of the SEC’s Division of Enforcement, enter into any 

 
 15 
employment, consultant, attorney-client, auditing or other professional 
relationship with EJR, or any of its present or former affiliates, directors, 
officers, employees, or agents acting in their capacity as such for the period 
of the engagement and for a period of two years after the engagement.  
i. The reports by the Independent Consultant will likely include confidential 
financial, proprietary, competitive business or commercial 
information.  Public disclosure of the reports could discourage cooperation, 
impede pending or potential government investigations or undermine the 
objectives of the reporting requirement.  For these reasons, among others, 
the reports and the contents thereof are intended to remain and shall remain 
non-public, except (1) pursuant to court order, (2) as agreed to by the parties 
in writing, (3) to the extent that the Commission determines in its sole 
discretion that disclosure would be in furtherance of the Commission’s 
discharge of its duties and responsibilities, or (4) is otherwise required by 
law. 
69. EJR shall prohibit Egan from participating directly or indirectly in (a) determining 
or monitoring any credit rating issued or maintained by EJR or (b) developing or approving 
procedures or methodologies used for determining credit ratings issued or maintained by EJR, 
including qualitative and quantitative models.  Within 45 days of entry of this Order, EJR shall 
establish written policies and procedures designed to implement and maintain the aforesaid 
prohibition.   
70. Compliance with the undertaking set forth in paragraph 69 shall not terminate 
upon the sale, acquisition, or other transaction affecting the ownership or control of EJR. 
71. EJR shall bear the full expense of carrying out these undertakings, including the 
costs of retaining the Independent Consultant and implementing the Independent Consultant’s 
recommendations. 
72. The chief executive officer and Designated Compliance Officer of EJR shall 
certify in writing, under penalty of perjury, that EJR has complied with the undertakings set forth 
above.  The certification shall identify the undertakings, provide written evidence of compliance 
in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  
The Commission staff may make reasonable requests for further evidence of compliance, and 
EJR agrees to provide such evidence.  The certification and supporting material shall be 
submitted to Yuri B. Zelinsky, Assistant Director, with a copy to the Office of Chief Counsel of 
the Enforcement Division, and to the Director of the Office of Credit Ratings, no later than sixty 
(60) days from the date of the Final Report referenced above.  Respondent EJR agrees that if the 
Division of Enforcement believes that Respondent EJR has not satisfied these undertakings, it 
may petition the Commission to reopen the matter to determine whether additional sanctions are 
appropriate. 

 
 16 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate, in the public interest, and 
for the protection of investors to impose the sanctions agreed to in Respondents’ Offers. 
 
 Accordingly, pursuant to Sections 15E(d) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
 A. Respondent EJR cease and desist from committing or causing any violations and any 
future violations of Sections 15E(h)(1) and 15E(f)(2) of the Exchange Act and Rules 17g-5(c)(8)(i), 
17g-5(c)(8)(ii), and 17g-5(c)(1) thereunder; 
 
 B. Respondent Egan cease and desist from committing or causing any violations and 
any future violations of Rules 17g-5(c)(8)(i) and 17g-5(c)(8)(ii); 
 
 C. EJR hereby is censured; 
 
 D. Respondent EJR shall comply with the undertakings enumerated in Section III above; 
 
 E. Respondent EJR shall, within ten (10) days of the entry of this Order, pay 
disgorgement of $129,000 and prejudgment interest of $17,592, to the Securities and Exchange 
Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act 
Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to SEC 
Rule of Practice 600;  
 
F. Respondent EJR shall, within ten (10) days of the entry of this Order, pay a civil 
money penalty in the amount of $1,700,000 to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 
3717; and 
 
G. Respondent Egan shall, within ten (10) days of the entry of this Order, pay a civil 
money penalty in the amount of $300,000 to the Securities and Exchange Commission for transfer 
to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 
timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   
 
Payment must be made in one of the following ways:   
 
(1) Respondents may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request;  
 
(2) Respondents may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 
 17 
 
(3) Respondents may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying EJR 
and Egan as Respondents in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Jennifer S. Leete, Division of 
Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549.  
 
H.  Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 
Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of 
any award of compensatory damages by the amount of any part of Respondents’ payment of a civil 
penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
Penalty Offset, Respondents agree that they shall, within thirty days after entry of a final order 
granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 
the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondents by or on behalf of one or more 
investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
 

 
 18 
V. 
 
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 
Respondent Egan, and further, any debt for disgorgement, prejudgment interest, civil penalty or 
other amounts due by Respondent Egan under this Order or any other judgment, order, consent 
order, decree or settlement agreement entered in connection with this proceeding, is a debt for the 
violation by Respondent Egan of the federal securities laws or any regulation or order issued under 
such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 523(a)(19). 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
Secretary 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 95127 / June 21, 2022 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-20902 

 

 

In the Matter of 

 

EGAN-JONES RATINGS 

COMPANY and SEAN EGAN,  

 

Respondents. 

 

ORDER INSTITUTING 

ADMINISTRATIVE AND CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTIONS 15E(d) AND 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASE-

AND-DESIST ORDER 
 

   

 

I. 
 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 15E(d) and 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”), against Egan-Jones Ratings Company and Sean Egan (“Respondents”).   

 

II. 
 

 In anticipation of the institution of these proceedings, Respondents have submitted Offers 

of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings  

herein, except as to the Commission’s jurisdiction over them and the subject matter of these 

proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 

to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to 

Sections 15E(d) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing 

Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   

 

 



 

 2 

III. 
 

 On the basis of this Order and Respondents’ Offers, the Commission finds1 that:  

 

Summary 
 

1. These proceedings arise out of violations of the securities laws, including 

provisions intended to curb potential conflicts of interest at credit rating agencies, by Egan-Jones 

Ratings Company (“EJR”), a Nationally Recognized Statistical Rating Organization 

(“NRSRO”).  Specifically, EJR violated Rule 17g-5(c)(8)(i) of the Exchange Act by issuing and 

maintaining a credit rating for a client where Sean Egan, EJR’s founder and sole owner, had 

participated in determining the credit rating at issue and engaged in sales and marketing activities 

with respect to that client.  Because Egan had been influenced by sales or marketing 

considerations at the time that he participated in determining the credit rating, EJR also violated 

Rule 17g-5(c)(8)(ii) of the Exchange Act.  Egan caused EJR’s violation of Rules 17g-5(c)(8)(i) 

and (ii).  

2. EJR also violated Rule 17g-5(c)(1) of the Exchange Act, which is a conflict-of-

interest rule that prohibits an NRSRO from issuing or maintaining a credit rating solicited by a 

person that, in the most recently ended fiscal year, provided the NRSRO with net revenue 

equaling or exceeding ten percent of the total net revenue of the NRSRO for the fiscal year.   

3. EJR also failed to establish, maintain, and enforce policies and procedures 

reasonably designed to manage conflicts of interest, in violation of Section 15E(h)(1) of the 

Exchange Act. 

4. An order issued by the Commission on January 22, 2013 (the “2013 Order”)2 

revoked EJR’s NRSRO registration for rating the classes of issuers of (a) asset-backed securities 

and (b) government, municipal, and foreign government securities, and also ordered EJR and 

Egan to cease and desist from committing or causing any violations of various securities laws.  

By rating two asset-backed securities and two municipal securities in 2017 and 2018 and making 

statements indicating that it was a registered NRSRO, but without prominently disclosing that 

the ratings in such ratings classes were not issued or maintained by an NRSRO that was 

registered to issue ratings in such classes, EJR violated Section 15E(f)(2) of the Exchange Act. 

Respondents 

 

5. Egan-Jones Ratings Company is a privately owned credit rating agency 

                                                 
1  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  

 
2  In re Egan-Jones Ratings Co., et al., Exch. Act Rel. No. 68703 (Jan. 22, 2013) (settled order).   

 



 

 3 

incorporated in Delaware and headquartered in Haverford, Pennsylvania.  On December 21, 

2007, the Commission approved EJR’s application to become registered as an NRSRO for three 

rating classes: financial institutions, insurance companies, and corporate issuers.  On December 

4, 2008, the Commission approved EJR’s application for registration as an NRSRO for two 

additional rating classes: issuers of asset-backed securities (“ABS”) and issuers of government 

securities, municipal securities, or securities issued by a foreign government.  

6. Sean Egan, age 64, is the founder and chief executive officer of EJR.  Egan is, 

and during the relevant time was, the sole shareholder of EJR.  During the relevant time, Egan 

also was EJR’s president, the head of EJR’s ratings group, and, other than the period from 

August 21, 2018 to April 29, 2019, the chairperson of EJR’s board of directors.   

Facts 

 

A. EJR and Egan are Subject to a Prior Cease-and-Desist and Administrative 

Order Issued by the Commission.  

7. The 2013 Order found that EJR willfully violated Sections 15E(a)(1), 

15E(a)(1)(B)(ix), 15E(a)(1)(C), 15E(b)(2), 15E(h)(1), and 17(a) of the Exchange Act and Rules 

17g-1(a), 17g-1(b), 17g-1(f), 17g-2(a)(2), 17g-2(a)(6), 17g-2(b)(2), 17g-2(b)(7), and 17g-5(c)(2), 

and that Egan willfully made, or caused EJR to make, material misstatements in its Form 

NRSRO; and caused EJR’s violations of Sections 15E and 17(a) of the Exchange Act and Rules 

17g-1, 17g-2, and 17g-5 thereunder.  The 2013 Order also required EJR to cease and desist from 

committing or causing violations of Section 15E(h)(1) and Rule 17g-5, and Egan to cease and 

desist from committing or causing any violations of Rule 17g-5. 

8. The 2013 Order revoked EJR’s NRSRO registrations for the classes of (a) issuers 

of asset-backed securities and (b) issuers of government, municipal and foreign government 

securities, and barred Egan from association with any NRSRO registered in those classes, with a 

right to reapply for registration and reentry after eighteen months.  It further ordered EJR to 

disclose prominently that its ratings of asset-backed and government securities were not issued 

or maintained by a registered NRSRO. 

B. EJR Violated, and Egan Caused EJR’s Violation of, Rules 17g-5(c)(8)(i) and (ii) 

of the Exchange Act. 

9. The Commission adopted Rule 17g-5(c)(8) pursuant to the Dodd-Frank Act.  In 

the wake of the 2008 financial crisis, Congress mandated that the Commission prescribe rules to 

improve the regulation of NRSROs.  Congress specifically found that “credit rating agencies face 

conflicts of interest that need to be carefully monitored.”  Dodd-Frank § 931.  Accordingly, the 

statute directed the Commission to “issue rules to prevent the sales and marketing considerations 

of a [NRSRO] from influencing the production of ratings by the [NRSRO].”  Dodd-Frank § 

932(a), codified at 15 U.S.C. § 78o-7(h)(3)(A).   

10. The Commission adopted Rule 17g-5(c)(8) for the purpose of insulating rating 



 

 4 

analysts from business pressures by separating rating agencies’ business-development function 

from their analytical  function (that is, the function of determining or monitoring a credit rating 

or approving procedures or methodologies used for determining the credit rating).  The rule 

states that an NRSRO “is prohibited from having the following conflicts of interest relating to 

the issuance or maintenance of a credit rating as a credit rating agency . . . . (8) The [NRSRO] 

issues or maintains a credit rating where a person within the [NRSRO] who participates in 

determining or monitoring the credit rating, or developing or approving procedures or 

methodologies used for determining the credit rating, including qualitative and quantitative 

models, also: (i) Participates in sales or marketing of a product or service of the [NRSRO] or a 

product or service of an affiliate of the [NRSRO]” or “(ii) is influenced by sales or marketing 

considerations.”   

11. According to the Commission’s adopting release, Rule 17g-5(c)(8)(i) “is designed 

to address situations in which, for example, individuals within an NRSRO who engage in 

activities to sell products and services (both ratings-related and non-ratings-related) of the 

NRSRO or its affiliates could seek to influence a specific credit rating to favor an existing or 

prospective client . . . .”  Nationally Recognized Statistical Rating Organizations, Final Rule, 79 

Fed. Reg. 55,078, 55,108 (Sept. 15, 2014). 

12. Rule 17g-5(c)(8)(ii) was intended to “curb potential conflicts of interest related to 

‘rating catering’ practices” and “promote the integrity and quality of credit ratings to the benefit 

of their users.”  Id. at 55,092.  The Commission’s adopting release explained that “there are a 

number of possible channels of influence” by sales or marketing considerations, including clients 

“who pressure analysts to produce inflated credit ratings to retain their business” or “managers 

who are not involved in sales and marketing activities but may seek to pressure analysts to 

produce inflated credit ratings to increase or retain the NRSRO’s market share.”  Id. at 55,110.   

13. The Commission further explained that the prohibition against those participating 

in a credit rating from being influenced by sales or marketing considerations is “an absolute 

prohibition.”  Id. at 55,108.   

EJR’s Procedure for Determining Ratings 

14. In light of the requirement that credit rating analysts be insulated from business 

pressures, EJR’s policies and procedures required that the firm’s ratings group be separated from 

the firm’s business and marketing group.  All business matters were required to be handled by a 

client relationship manager in the firm’s business and marketing group; members of the ratings 

group were permitted to discuss only rating matters with clients and were prohibited from 

discussing, negotiating, or arranging fees or engaging in other sales and marketing activities. 

15. If a client requested a private rating from EJR, a member of EJR’s business and 

marketing group would convey that request to EJR’s ratings analysts, who would determine their 

recommended rating for a given transaction.  EJR would convene a Ratings Review Committee 

(“RRC”) to evaluate the proposed rating and vote on it.  An RRC consisted of (1) the presenting 

analyst, who led the ratings team that proposed the rating; and (2) at least two voting members, 

one of whom also could serve as the committee’s chairperson.  The presenting analyst was not 



 

 5 

allowed to vote.  According to EJR's rating policies and procedures, a majority of the voting 

members of the RRC needed to vote in support of a proposed rating before it could be issued by 

EJR. 

Egan Caused EJR’s Violation of Rule 17g-5(c)(8)(i) and (ii) 

16. On July 11, 2019, Client A engaged EJR to issue a rating for a real estate 

transaction.  Although EJR’s typical turnaround time for that type of rating was approximately 

five days, on July 23, EJR discovered that the client relationship manager for Client A had failed 

to submit the ratings request to the ratings group. 

17. On July 31, Client A emailed EJR’s client relationship manager to ask about the 

status of the rating and the reason for the delay.  In those emails to EJR, Client A complained 

that the delay was “beyond ridiculous” and demanded that the rating be issued that day by 5:00 

p.m.  Client A also threatened to cancel the pending rating request and stop doing business with 

EJR. 

18. Egan — who at the time was EJR’s president and the head of EJR’s ratings 

group — spoke to the client relationship manager and stated that Client A was an important 

client for EJR and that he was concerned that EJR could lose Client A’s business.  

19. Later on July 31, Egan called Client A and promised that EJR would provide the 

requested rating later that day.  Egan also told Client A that the client relationship manager was 

being replaced.  That communication violated EJR’s policies, which stated that “communication 

between the Ratings group and the clients shall only relate to the rating matters and not involve 

sales or marketing matters nor being influenced by the sales and marketing matters.”  The client 

relationship manager, ultimately, was taken off the account for Client A. 

20. At around 4:30 p.m. on July 31, a half hour before Client A’s deadline, EJR 

convened an RRC by telephone to vote on a proposed rating for Client A.  Egan and a senior EJR 

analyst (“Analyst 1”) were the voting members of the committee, with Analyst 1 serving as the 

chairperson.  The presenting analyst on the committee (the “Presenting Analyst”) recommended 

a rating of BBB+ for the transaction.  However, during the RRC meeting, Analyst 1 requested 

certain information about the transaction that she believed was essential for determining an 

accurate rating.  Because EJR did not have the information that she sought, Analyst 1 abstained 

from voting on the proposed rating.  Without a majority of voting members in support, the 

proposed rating was not approved by the RRC.  

21. At approximately 5:13 p.m., Client A sent Egan an email stating: “We are passed 

[sic] 5pm.  Where is the rating?” 

22. At approximately 5:17 p.m., Egan became the chairperson of the RRC.  Analyst 1 

was replaced with another EJR analyst (“Analyst 2”) as the second voting member.   

23. At 5:21 p.m., Egan and Analyst 2 voted to approve the proposed BBB+ rating, 

which EJR then issued.   



 

 6 

24. Client A, however, was displeased with the BBB+ rating, and emailed the 

Presenting Analyst asking why the rating only was BBB+ and noted that EJR had recently rated 

another, similar transaction for Client A two notches higher.  When the Presenting Analyst 

attempted to explain the reason for the BBB+ rating, Client A replied, “Surely you jest.  I 

recommend you go back and verify your models.  You must have missed something.”  Client A 

then forwarded those emails to Egan and asked Egan to call to discuss the rating.   

25. At that time it was EJR’s policy that any client who disagreed with an EJR rating 

would be asked to “provide written support for their objection including any relevant materials” 

for review by the RRC.  Client A, however, provided no written support for its purported 

objections to the BBB+ rating, and EJR did not ask Client A for such written support. 

26. On August 6 and August 7, 2019, Client A emailed Egan asking him whether 

there was any “update” on the rating.   

27. Around this time, Egan, in his capacity as a member of the prior RRC that had 

approved the BBB+ rating on July 31, directed the Presenting Analyst to develop a new rating 

tool in light of  Client A’s concerns about the BBB+ rating.  On August 12, EJR convened 

another RRC, with Egan as a voting member and an analyst who had not participated in either of 

the two prior RRCs as the RRC chair and second voting member (“Analyst 3”).  Neither Analyst 

1 nor Analyst 2 was invited to serve on this new RRC. 

28. The Presenting Analyst again proposed a rating of BBB+.  Notwithstanding the 

Presenting Analyst’s recommendation, and although EJR had received no substantive 

information from Client A to support a higher rating, Egan and Analyst 3, relying on the new 

rating tool referenced above, voted to increase the rating one notch to A-.   

29. On August 16, EJR sent Client A the upgraded rating.  After receiving the 

upgraded rating, a manager at Client A emailed his team at Client A, “Finally got the A- 

rating….”   

30. Upon learning over a month later that two RRCs with different voting members 

had been convened to consider Client A’s rating, EJR’s Designated Compliance Officer emailed 

another EJR employee: “I don’t think it’s appropriate to change RRC members when 

reconvening to address a[] [client’s] appeal” unless approved by compliance, since doing so may 

give rise to a claim of “shuffling people around for a higher rating.”  

31. Under these circumstances, Egan, by advising Client A that EJR’s client 

relationship manager was being replaced and informing Client A when the rating would be 

issued, effectively assumed the role of EJR’s client relationship manager with Client A.  After 

doing so, Egan — who knew that Client A was important to EJR and understood that potential 

future business with Client A was at risk — rejected the concerns and recommendations of 

senior EJR analysts in ultimately approving the A- rating for Client A.  Egan’s continued 

participation in and direction of the rating process as to Client A — after becoming involved in 

business and marketing activities as to Client A and being influenced by sales and marketing 



 

 7 

considerations — constituted a prohibited conflict of interest. 

32. By issuing and maintaining the rating for Client A under the circumstances 

described above, EJR violated Rule 17g-5(c)(8)(i) and (ii).  By violating the rule, EJR violated 

the 2013 Order.  Egan caused EJR’s violations of Rule 17g-5(c)(8)(i) and (ii).  By causing EJR’s 

violations, Egan violated the 2013 Order. 

C. EJR Violated Rule 17g-5(c)(1) of the Exchange Act. 

33. Rule 17g-5(c)(1) of the Exchange Act (the “Ten Percent Rule”) prohibits an 

NRSRO from issuing or maintaining a credit rating solicited by a person that, in the most 

recently ended fiscal year, provided the NRSRO with net revenue equal to or exceeding ten 

percent of the total net revenue of the NRSRO for the fiscal year.3  The adopting release for Rule 

17g-5(c)(1) explains that a person who provides ten percent or more of an NRSRO’s net revenue 

would be “in a position to exercise substantial influence on the NRSRO,” and that it would “be 

difficult for the NRSRO to remain impartial, given the impact on the NRSRO’s income if the 

person withdrew its business.”  Oversight of Credit Rating Agencies Registered as Nationally 

Recognized Statistical Rating Organizations; Final Rule, 72 Fed. Reg. 33,564, 33,598 (June 18, 

2007).   

34. By August 2017, EJR was aware, based on internal revenue forecasts, that a 

particular client (Client B) might contribute more than ten percent of EJR’s net revenue by the 

end of the fiscal year.  EJR continued to provide rating services and accept payments from Client 

B through the end of 2017. 

35. As of December 31, 2017, Client B accounted for 13.9 percent of EJR’s year-to-

date net revenue. 

36. On March 26, 2018, EJR submitted its independently audited 2017 financial 

statements and the associated unaudited financial revenue report.  In those financial statements, 

EJR recorded a $538,000 loss contingency, which EJR described as “excess revenue refundable” 

and classified as a current liability on its balance sheet as of December 31, 2017.  The loss 

contingency purported to offset the exact amount by which revenues from Client B exceeded ten 

percent of EJR’s net revenues for 2017.   

37. That loss contingency, however, was not accrued in accordance with generally 

accepted accounting principles (“GAAP”) because EJR failed to satisfy the conditions precedent 

for accrual of a loss contingency under ASC 450-20-25-2.  EJR lacked a reasonable basis for 

believing that it was probable that (a) a claim would be asserted by or concerning Client B or (b) 

                                                 
3  As explained in the Ten Percent Rule Final Release, “net revenue” is “revenue earned by the ... 

NRSRO for any type of service or product, regardless of whether related to credit rating services, 

and net of any rebates and allowances paid or owed to the person by the ... NRSRO.”  Oversight 

of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations; 

Final Rule, 72 Fed. Reg. 33,564, 33,580 (June 18, 2007). 



 

 8 

the outcome of any such claim would be unfavorable.  The amount of any unfavorable outcome 

also was not reasonably estimable.   

38. Notwithstanding that Client B had contributed more than ten percent of EJR’s net 

revenues in 2017, EJR continued to issue and maintain ratings for Client B in 2018, issuing at 

least thirty-nine new ratings for Client B from January through May 2018.  During that time, EJR 

also continued to surveil and maintain ratings that it previously had issued for Client B.   

39. On May 25, 2018, EJR ceased issuing new ratings or surveillance ratings for 

Client B.  However, at least until December 2018, EJR continued to maintain ratings for Client B 

that it had previously issued.   

40. By continuing to issue and maintain ratings for Client B in 

2018 — notwithstanding that Client B had contributed more than ten percent of EJR’s net 

revenue in 2017 — EJR violated Exchange Act Rule 17g-5(c)(1) and, by violating the rule, EJR 

also violated the 2013 Order.   

D. EJR Failed to Establish, Maintain, or Enforce Policies and Procedures 

Reasonably Designed to Manage Conflicts of Interest. 

41. Section 15E(h)(1) of the Exchange Act requires NRSROs to “establish, maintain, 

and enforce written policies and procedures reasonably designed, taking into consideration the 

nature of the business of such nationally recognized statistical rating organization and affiliated 

persons and affiliated companies thereof, to address and manage any conflicts of interest that can 

arise from such business.”  

42. EJR had in place during the relevant time certain policies and procedures intended 

to address the Ten Percent Rule.  However, at least throughout 2017 and early 2018, those 

policies and procedures were neither reasonably designed nor enforced.  EJR did not have any 

written process or procedure outlining what steps EJR would take if a client was projected to or 

did contribute ten percent or more of EJR’s net revenue by the end of a given fiscal year.   

43. EJR also had established certain policies and procedures that were designed to 

prevent someone who had participated in determining a credit rating from also participating in 

sales or marketing or being influenced by sales and marketing considerations with respect to the 

rating.  EJR failed to enforce those policies and procedures.  With respect to the rating EJR 

provided for Client A, EJR failed to enforce its policies and procedures and, as a result, did not 

prevent the issuance and maintenance of a rating that Egan had participated in determining at a 

time when he also participated in sales or marketing and was influenced by sales or marketing 

considerations.   

44. As a result, EJR violated Section 15E(h)(1) of the Exchange Act.  By violating the 

Section 15E(h)(1), EJR also violated the 2013 Order. 



 

 9 

E. EJR Violated Section 15E(f)(2) of the Exchange Act. 

45. Section 15E(f)(2) of the Exchange Act makes it unlawful for any rating agency 

that is not registered as an NRSRO to state that it is an NRSRO.  At all relevant times, EJR and 

Egan were subject to the 2013 Order which, among other things, revoked EJR’s registration to 

rate issuers of asset-backed and government securities as an NRSRO and required EJR to 

disclose prominently that ratings in those rating classes are not issued or maintained by a 

registered NRSRO.   

46. Despite not being registered as an NRSRO for rating issuers of ABS and 

government securities, in 2017 and 2018, EJR rated two ABS and two municipal securities.  In 

its report for each of the ratings, EJR stated that it used a methodology described in its Form 

NRSRO, without prominently disclosing in its reports that those ratings were not issued or 

maintained by an NRSRO registered to issue ratings in those classes.  The methodologies 

required to be described in Form NRSRO are those that are used to determine credit ratings in 

ratings classes in which an NRSRO is registered.   

EJR’s Rating of ABS 

47. In late 2016, Client C engaged EJR to rate two tranches of a transaction involving 

the financing of certain receivables.  On January 19, 2017, EJR provided Client C with an 

indicative rating on the transaction, but at the same time questioned whether the transaction 

might constitute an ABS.  EJR asked Client C to provide it with the transaction documents to 

evaluate whether the transaction was an ABS.  

48. In February and March 2017, EJR issued two more indicative ratings on the 

transaction.  EJR informed Client C at this time that Client C “might be bumping into structured 

finance if [it] plan[s] to structure with various tranche [sic].” 

49. Based on a term sheet and other materials received from Client C, on May 3, 

2017, EJR issued the final rating for two tranches of Client C’s transaction in the corporate 

ratings class, in which EJR was registered as an NRSRO, rather than the ABS class in which 

EJR’s registration had been revoked.  EJR issued those ratings notwithstanding that Client C had 

not provided the requested transaction documents and the question of whether the transaction 

was an ABS remained unresolved at that time.  Moreover, the final ratings had been reviewed by 

a EJR senior analyst and voted on by the RRC without any documented discussion concerning 

the structure or proper rating class of the transaction.  In its rating report, EJR stated that it used 

a methodology described in its Form NRSRO, but failed to disclose prominently that the rating 

had not been issued by an NRSRO registered to issue ratings for the ABS class. 

50. In August 2017, Client C requested an updated rating letter from EJR and 

provided EJR with certain transaction documents.  On or around September 6, based on advice 

from its outside counsel, EJR determined that the two ratings in May 2017 involved an ABS.   

51. EJR notified Client C of its determination but did not withdraw the May 2017 

NRSRO rating.  Instead, EJR told Client C that it would need to restructure the transaction as a 



 

 10 

loan or as a note from an operating company in order to receive an updated NRSRO rating in the 

corporate ratings class.  Client C subsequently modified the terms of the transaction such that the 

transaction was not classified as an ABS. 

EJR’s Rating of Municipal Securities 

52. In October 2017, Client D requested that EJR provide a final rating for a bond 

referred to as a Property Assessed Clean Energy (“PACE”) bond, which would finance a 

redevelopment and energy-efficiency improvement of a certain property.  

53. Client D’s requests sent to EJR included an excerpt, in bold type, that identified 

the bond’s CUSIP as a “Municipal CUSIP” (emphasis added).  

54. The ratings team that generated the rating was unfamiliar with the PACE 

program, and conducted general internet research on the bond.  During the preparation of the 

ratings report, an EJR analyst questioned whether the bond was a municipal security, but was 

told by her supervisor that it was not.  The ratings team consequently treated the bond as a 

corporate security rather than as a municipal security.   

55. On December 27, EJR issued a final rating for the transaction.  In its rating report, 

EJR stated that it used a methodology described in its Form NRSRO, but failed to disclose 

prominently that the rating had not been issued by an NRSRO registered to issue ratings for 

issuers of government, municipal, or foreign government securities. 

56. On January 11, 2018, Client D asked EJR to provide a final rating for another, 

similar PACE bond.  Documents for that transaction also included an excerpt that identified, in 

bold type, the bond’s CUSIP as a “Municipal CUSIP” (emphasis added).   

57. Nevertheless, on January 26, EJR issued a final rating for the transaction.  In its 

rating report, EJR stated that it used a methodology described in its Form NRSRO, but failed to 

disclose prominently that the rating had not been issued by an NRSRO registered to issue 

ratings for issuers of government, municipal, or foreign government securities. 

58. By rating two asset-backed securities and two municipal securities in 2017 and 

2018 — while making statements indicating that it was a registered NRSRO, but without 

prominently disclosing that the ratings in such ratings classes were not issued or maintained by 

an NRSRO that was registered to issue ratings in such classes — EJR violated Section 15E(f)(2) 

of the Exchange Act and the 2013 Order. 



 

 11 

Violations 

59. As a result of the conduct described above, EJR willfully4 violated Rule 17g-

5(c)(8)(i) of the Exchange Act, which prohibits NRSROs from issuing or maintaining a credit 

rating where a person within the NRSRO who participates in determining or monitoring the 

credit rating, or developing or approving procedures or methodologies used for determining the 

credit rating, including qualitative and quantitative models, also participates in sales or marketing 

of a product or service of the NRSRO or an affiliate of the NRSRO.   

60. As a result of the conduct described above, EJR willfully violated Rule 17g-

5(c)(8)(ii) of the Exchange Act, which prohibits NRSROs from issuing or maintaining a credit 

rating where a person within the NRSRO who participates in determining or monitoring the 

credit rating, or developing or approving procedures or methodologies used for determining the 

credit rating, including qualitative and quantitative models, also is influenced by sales or 

marketing considerations.   

61. As a result of the conduct described above, Egan caused EJR’s violations of Rules 

17g-5(c)(8)(i) and (ii) of the Exchange Act. 

62. As a result of the conduct described above, EJR willfully violated Rule 17g-

5(c)(1) of the Exchange Act, which prohibits an NRSRO from issuing or maintaining a credit 

rating solicited by a person that, in the most recently ended fiscal year, provided the NRSRO 

with net revenue equal to or exceeding ten percent of the total net revenue of the NRSRO for the 

fiscal year. 

63. As a result of the conduct described above, EJR willfully violated Section 

15E(h)(1) of the Exchange Act, which requires an NRSRO to establish, maintain, and enforce 

written policies and procedures reasonably designed, taking into consideration the nature of the 

business of such NRSRO and affiliated persons and affiliated companies thereof, to address and 

manage any conflicts of interest that can arise from such business. 

64. As a result of the conduct described above, EJR willfully violated Section 

15E(f)(2) of the Exchange Act, which prohibits a credit rating agency that is not registered as an 

NRSRO under that section to state that such credit rating agency is a registered NRSRO. 

                                                 
4  “Willfully,” for purposes of imposing relief under Section 15E(d)(1) of the Exchange Act, 

“‘means no more than that the person charged with the duty knows what he is doing.’”  

Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 

977 (D.C. Cir. 1949)).  There is no requirement that the actor “also be aware that he is violating 

one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  The decision in The 

Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently 

structured statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 

2019) (setting forth the showing required to establish that a person has “willfully omit[ted]” 

material information from a required disclosure in violation of Section 207 of the Advisers Act). 



 

 12 

Disgorgement 
 

65. The disgorgement and prejudgment interest ordered in paragraph IV.E is 

consistent with equitable principles, does not exceed EJR’s net profits from its violations, and 

returning the money to EJR would be inconsistent with equitable principles.  Therefore, in these 

circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable alternative.  

The disgorgement and prejudgment interest ordered in paragraph IV.D shall be transferred to the 

general fund of the U.S. Treasury, subject to Section 21F(g)(3) of the Exchange Act.   

Undertakings 
 

 Respondent EJR has undertaken to: 

 

66. Within 90 days of the entry of this Order, conduct a training program addressing 

the Commission’s conflict of interest rules, including but not limited to the prohibitions set forth 

in Rules 17g-5(c)(8) and 17g-5(c)(1) of the Exchange Act.  This training program shall educate 

attendees regarding applicable rules and regulations and relevant policies and procedures.  This 

training shall also explain how employees can raise concerns and the avenues for doing so, 

including internally and directly with the SEC through the Whistleblower Program.  Attendance 

at this training program will be mandatory for all current EJR personnel, each of whom shall 

certify in writing that he or she attended this program.  Within 90 days of the entry of this Order, 

EJR also will create policies or procedures to ensure that this training is provided to all new 

employees in their first fourteen days of employment, and repeated annually for all employees.  

As part of this policy or procedure, both new employees and recipients of the annual training 

shall attest in writing that they attended the training.  EJR or any successor will maintain the 

training program for not less than two years after entry of this order.  EJR will certify, through its 

Designated Compliance Officer, that it has conducted the above-described training program and 

has created the above-described policies and procedures. 

67. Prepare and submit revenue reports through fiscal year 2024 as follows:  

a. For each ratings client that provided EJR with at least eight percent of EJR’s 

net revenue (as defined in the note to Rule 17g-3(a)(5)) as of the end of each 

fiscal quarter, a report stating: (i) EJR’s year-to-date revenue, by client; (ii) 

EJR’s total projected annual net revenue; (iii) EJR’s total year-to-date net 

revenue ; and (iv) the name of each client that accounts for eight percent or 

more of EJR’s year-to-date net revenue or is projected to account for eight 

percent or more of EJR’s year-end net revenue and the percentage share of 

such net revenue for each listed client. 

b. For each report, the Designated Compliance Officer of EJR shall certify in 

writing that the information in the report has been fairly presented in all 

material respects and that all projections were prepared in good faith using 

assumptions believed by such person to be reasonable. 



 

 13 

c. Within twenty calendar days after the end of each fiscal quarter 

commencing with the third quarter of each fiscal year, EJR shall submit the 

reports and certifications specified above to the Director, Office of Credit 

Ratings, U.S. Securities and Exchange Commission, 100 F Street, N.E., 

Washington, DC 20549. 

68. Within 60 days from the entry of this Order, retain the services of an independent 

consultant that is not unacceptable to the staff of the U.S. Securities and Exchange Commission’s 

Division of Enforcement and Office of Credit Ratings (“Staff”).  The Independent Consultant’s 

compensation and expenses shall be borne exclusively by EJR. 

a. EJR shall provide a copy of the engagement letter to the Staff detailing the 

Independent Consultant’s responsibilities. 

b. EJR shall require that the Independent Consultant perform the following 

duties: 

i. Conduct a comprehensive review of EJR’s written policies and 

procedures intended to address and manage conflicts of interest 

(“EJR’s Policies and Procedures”);  

ii. Assess whether EJR’s Policies and Procedures are reasonably 

designed, taking into consideration the nature of EJR’s business and 

affiliated persons and affiliated companies thereof, to address and 

manage any conflicts of interest that can arise from such business;   

iii. Make recommendations with respect to EJR’s Policies and Procedures 

and their implementation and enforcement; 

iv. Submit, within 180 days of the entry of this order, a written and dated 

report of its findings and recommendations (the “Initial Report”) to 

EJR’s board of directors, EJR senior management, and the Staff.  EJR 

and its employees shall have no input into the Independent 

Consultant’s report, other than to provide information and other 

cooperation requested by the Independent Consultant.  The Initial 

Report shall (a) set forth the Independent Consultant’s findings about 

the adequacy of EJR’s Policies and Procedures and (b) if necessary, 

make recommendations regarding how EJR should modify or 

supplement its Policies and Procedures;  

v. No sooner than six months from EJR’s receipt of the Initial Report, 

require the Independent Consultant to conduct a review of EJR’s 

implementation of the Independent Consultant’s recommendations 

discussed above; and 

vi. Within eight months from EJR’s receipt of the Initial Report, submit a 



 

 14 

written final report (“Final Report”) to EJR’s board of directors, EJR 

senior management, and the Staff.  The Final Report shall describe 

the review made of EJR’s implementation of the Independent 

Consultant’s recommendations and describe how EJR has 

implemented and is complying with the Independent Consultant’s 

recommendations. 

c. EJR shall cooperate fully with the Independent Consultant, including 

providing the Independent Consultant with access to the files, books, 

records, and personnel of EJR as reasonably requested for the above-

described reviews, and obtaining the cooperation of employees or other 

persons under EJR’s control.  

d. EJR will work with the Independent Consultant to implement the 

Independent Consultant’s recommendations, and where necessary, will 

consult with the Staff on any recommendations that EJR considers unduly 

burdensome or would have difficulty implementing for other reasons.  

e. EJR shall require the Independent Consultant to report to the Staff on his/her 

activities as the Staff may reasonably request. 

f. To ensure the independence of the Independent Consultant, EJR shall not 

have the authority to terminate the Independent Consultant without prior 

written approval of the Staff and shall compensate the Independent 

Consultant and persons engaged to assist the Independent Consultant for 

services rendered pursuant to this Order at their reasonable and customary 

rates. 

g. EJR shall expend sufficient funds to permit the Independent Consultant to 

discharge all of his/her duties.  EJR shall permit the Independent Consultant 

to engage such assistance, clerical, legal or expert, as necessary and at a 

reasonable cost, to carry out his/her activities, and the cost, if any, of such 

assistance shall be borne exclusively by EJR. 

h. EJR shall require the Independent Consultant to enter into an agreement that 

provides that for the period of engagement and for a period of two years 

from completion of the engagement, the Independent Consultant shall not 

enter into any employment, consultant, attorney-client, auditing or other 

professional relationship with EJR, or any of its present or former affiliates, 

directors, officers, employees, or agents acting in their capacity.  The 

agreement will also provide that the Independent Consultant will require 

that any firm with which he/she is affiliated or of which he/she is a member, 

and any person engaged to assist the Independent Consultant in performance 

of his/her duties under this Order shall not, without prior written consent of 

the Director of the SEC’s Division of Enforcement, enter into any 



 

 15 

employment, consultant, attorney-client, auditing or other professional 

relationship with EJR, or any of its present or former affiliates, directors, 

officers, employees, or agents acting in their capacity as such for the period 

of the engagement and for a period of two years after the engagement.  

i. The reports by the Independent Consultant will likely include confidential 

financial, proprietary, competitive business or commercial 

information.  Public disclosure of the reports could discourage cooperation, 

impede pending or potential government investigations or undermine the 

objectives of the reporting requirement.  For these reasons, among others, 

the reports and the contents thereof are intended to remain and shall remain 

non-public, except (1) pursuant to court order, (2) as agreed to by the parties 

in writing, (3) to the extent that the Commission determines in its sole 

discretion that disclosure would be in furtherance of the Commission’s 

discharge of its duties and responsibilities, or (4) is otherwise required by 

law. 

69. EJR shall prohibit Egan from participating directly or indirectly in (a) determining 

or monitoring any credit rating issued or maintained by EJR or (b) developing or approving 

procedures or methodologies used for determining credit ratings issued or maintained by EJR, 

including qualitative and quantitative models.  Within 45 days of entry of this Order, EJR shall 

establish written policies and procedures designed to implement and maintain the aforesaid 

prohibition.   

70. Compliance with the undertaking set forth in paragraph 69 shall not terminate 

upon the sale, acquisition, or other transaction affecting the ownership or control of EJR. 

71. EJR shall bear the full expense of carrying out these undertakings, including the 

costs of retaining the Independent Consultant and implementing the Independent Consultant’s 

recommendations. 

72. The chief executive officer and Designated Compliance Officer of EJR shall 

certify in writing, under penalty of perjury, that EJR has complied with the undertakings set forth 

above.  The certification shall identify the undertakings, provide written evidence of compliance 

in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  

The Commission staff may make reasonable requests for further evidence of compliance, and 

EJR agrees to provide such evidence.  The certification and supporting material shall be 

submitted to Yuri B. Zelinsky, Assistant Director, with a copy to the Office of Chief Counsel of 

the Enforcement Division, and to the Director of the Office of Credit Ratings, no later than sixty 

(60) days from the date of the Final Report referenced above.  Respondent EJR agrees that if the 

Division of Enforcement believes that Respondent EJR has not satisfied these undertakings, it 

may petition the Commission to reopen the matter to determine whether additional sanctions are 

appropriate. 



 

 16 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate, in the public interest, and 

for the protection of investors to impose the sanctions agreed to in Respondents’ Offers. 

 

 Accordingly, pursuant to Sections 15E(d) and 21C of the Exchange Act, it is hereby 

ORDERED that: 

 

 A. Respondent EJR cease and desist from committing or causing any violations and any 

future violations of Sections 15E(h)(1) and 15E(f)(2) of the Exchange Act and Rules 17g-5(c)(8)(i), 

17g-5(c)(8)(ii), and 17g-5(c)(1) thereunder; 

 

 B. Respondent Egan cease and desist from committing or causing any violations and 

any future violations of Rules 17g-5(c)(8)(i) and 17g-5(c)(8)(ii); 

 

 C. EJR hereby is censured; 

 

 D. Respondent EJR shall comply with the undertakings enumerated in Section III above; 

 

 E. Respondent EJR shall, within ten (10) days of the entry of this Order, pay 

disgorgement of $129,000 and prejudgment interest of $17,592, to the Securities and Exchange 

Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act 

Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to SEC 

Rule of Practice 600;  

 

F. Respondent EJR shall, within ten (10) days of the entry of this Order, pay a civil 

money penalty in the amount of $1,700,000 to the Securities and Exchange Commission for 

transfer to the general fund of the United States Treasury, subject to Exchange Act Section 

21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 

3717; and 

 

G. Respondent Egan shall, within ten (10) days of the entry of this Order, pay a civil 

money penalty in the amount of $300,000 to the Securities and Exchange Commission for transfer 

to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 

timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   

 

Payment must be made in one of the following ways:   

 

(1) Respondents may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon 

request;  

 

(2) Respondents may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

http://www.sec.gov/about/offices/ofm.htm


 

 17 

 

(3) Respondents may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying EJR 

and Egan as Respondents in these proceedings, and the file number of these proceedings; a copy of 

the cover letter and check or money order must be sent to Jennifer S. Leete, Division of 

Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549.  

 

H.  Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 

treated as penalties paid to the government for all purposes, including all tax purposes.  To 

preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 

Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of 

any award of compensatory damages by the amount of any part of Respondents’ payment of a civil 

penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 

Penalty Offset, Respondents agree that they shall, within thirty days after entry of a final order 

granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 

the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 

deemed an additional civil penalty and shall not be deemed to change the amount of the civil 

penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 

means a private damages action brought against Respondents by or on behalf of one or more 

investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding. 

 



 

 18 

V. 

 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 

Respondent Egan, and further, any debt for disgorgement, prejudgment interest, civil penalty or 

other amounts due by Respondent Egan under this Order or any other judgment, order, consent 

order, decree or settlement agreement entered in connection with this proceeding, is a debt for the 

violation by Respondent Egan of the federal securities laws or any regulation or order issued under 

such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 523(a)(19). 

 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

Secretary 

 


	UNITED_STATES_OF_AMERICA
	In_the_Matter_of
	Respondents
	Facts
	Disgorgement_and_Civil_Penalties