Jesse Eisinger posted a very good piece on the SEC and
ratings agencies today (SEC
keeps the Ratings Game Rigged). He writes about the Egan-Jones case,
"This is your S.E.C., folks. It courageously assails tiny firms, and at
the pace of a three-toed sloth. And when it goes after its prey, it's because
it has found a box unchecked, rather than any kind of deep, systemic
rot." Wonderful stuff. Read it.
And about the SEC investigation of Egan-Jones I can only
ask: in light of all the problems brought to light by the financial crisis, how
can the SEC devote time to this? Egan-Jones operates on a
subscriber-based model -- that is, they sell their ratings to people who
subscribe to their services and not to the companies they rate like the
majority of the NRSROs (Nationally Recognized Statistical Ratings
Organizations) like Moody's or S&P and others. Of the ten NRSROs
sanctioned by the SEC, only three are subscriber-based. The rest are
issuer-paid or paid by the companies they rate. See a conflict there?
It is not clear to me whether Egan-Jones broke rules but
it is also not clear to me if this case is an appropriate allocation of
resources. What is the public good to be achieved? What about the
big problems in our system exposed by the financial crisis?
on a related note, I'll resurrect my earlier piece on the
SEC mutterings about regulating proxy advisory services, "Will
The SEC Push Back?".
Read more blog posts on corporate governance at the Robert
A.G. Monks blog
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