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FBN’s Charlie Gasparino on the SEC charges against Egan-Jones and President Sean Egan.
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Mostly in the meantime Charlie Gasparino just arrived on the -- got some breaking news on that small ratings agency -- -- -- -- you know the the headline should be.
SEC charges EGE Egan Jones for lousy ratings -- application.
Let's -- Moody's and SMP for causing the financial crisis because I can't believe -- -- is what we know right now they have charge -- begins firm.
Egan Jones considered an independent -- because they don't collect the fees from the people they rate the rate they've charged him essentially for filing.
Kind of an incomplete report breeding -- -- -- application to become what's known as.
A nationally recognized reading -- that's a pretty big distinction if you have that stamp of approval.
From the SEC gets you to rate deals you have much more power in the markets people follow you it's a pretty big deal but this is what we know.
Is that the SEC has charged with for.
Would -- filing you know applications that did not meet its qualifications misrepresentations.
To go on just getting a comment from deacon Jones they are saying they will litigate this vigorously and they will fight these -- right and they have to because if the if that would put it seems like the -- -- -- -- It's not just find them make an example item if you look at -- -- -- the that the filing.
Looks like you wanna take away that designation from them and that would be a huge blow to the business -- cease to exist no -- median.
It's been -- independent ratings for a long time but having that -- cruel and what happened was the SEC opened up.
The ratings business -- in in a major way following the financial crisis was.
Obviously Moody's and S&P YouTube and Fitch and three major rating agencies.
People thought that they fell down on the job to put triple A ratings on mortgage backed securities that were held might have banks have turned out.
Obviously not to be triple -- to turn out to be toxic the exact opposite triple.
Dean at whatever.
Cause of it was one of the major contributors to the financial crisis so they open it up to -- outfits like he didn't -- Geraldine Jones and leave.
Applied for this designation in 2008 was granted it around that time with the SEC did these gone back.
And looked at the application this is work its fishy right it went back and looked at their application.
And found these material omissions you know it's -- -- overstating how many analysts work on projects how many million -- -- do we should put this in context this is what I believe really happen.
Late last year as we -- first to report Wii remote while among the first report what we had -- -- -- get on to talk about this.
Egan Jones downgraded Jeffords became right if -- the brokerage firms Jefferies on the December I believe it's JEF.
Downgraded them right -- MF global imploded.
-- -- run on the stock.
And on the bank people pulling lines of credit it looked like -- is gonna go under.
As we were the first to report we had two and.
Admitted that he might have omitted fairness December when yet happened key information in that report namely he was saying they have a lot exposure to New York.
What do you -- was what the company said it had -- shorts short position hedges on those long positions tied to your which would have mitigated the negative impact.
So this I believe is the real reason why.
The SEC went back and -- they want to see what kind of firm this was.
And then it was a firm that they they probably believe does not have the wherewithal.
To basically do this sort of stuff this is what I think this is my surmise you know it's it comes to close to each other you just don't have here you go back and look at an application.
Bring it back to the -- retail investor and why these ratings matter because every investor in the world was basing their decision to buy toxic stuff.
On a triple -- rating that the big boys were doing but.
When you look at deacon Jones again the business model was completely different folks deacon Jones does not get paid by the people we haven't seen conflict isn't quite there.
Now the conflict is there because what would with Jefferies argued in this is why I believe it's -- is that Egan Jones cells to hedge funds.
Hedge funds.
Is there -- other clients hedge fund Schwartz stocks hedge funds were shorting.
Jeff I was sorry that they were buying CDS is guess what happens when you short -- stock and it goes down you make money.
And the CDS goes up so -- -- credit default swap which which is the insurance policy you make money both ways.
That's what Jeffrey was arguing that these guys were holding water for people that work that I do that had it in their best vested interest.
To see shares of Jefferies go down and I believe that is what's at issue here.
-- it's problematic when you're dependent on other people to do your research no matter what I mean let's.
-- you don't gotten an ability audience that they -- all yet and aren't going to be up well he started for awhile and I design of his quote really Smart guy and I will say this.
Ended with these nationally recognized rating she's the is it is a game it doesn't matter.
Every major investor out there has their -- Shop and by the -- do your own homework and how about just not not have the government involved it was if you wanna take a Moody's rating -- take a Moody's rating.
Just don't give them the sort of licensed -- not very good and what kills me about joining him is -- how much and we need to was right he I have as the court in in omitting material you know if rich I thought was -- Europe.
But let's face of -- didn't -- the lousy application maybe misrepresent his applications Moody's and S&P and Fitch.
Probably help.
Not probably -- deathly of course the financial crisis.
Charlie Kasper -- thank you very much.
