U.S. SEC sues Morningstar over ratings of commercial mortgage-backed securities
Morningstar’s credit rating activity reportedly violated disclosure and internal oversight requirements in 30 commercial mortgage-backed securities transactions from 2015 to 2016, when the agency authorized analysts to make undisclosed adjustments to main constraints to its modeling, the SEC said.
A Morningstar spokesperson said the company has complied with all regulatory requirements and the methodology complaint it voluntarily withdrew in 2018. The SEC also alleged no harm to investors, a- she declared.
Rating agencies have come under fire after the US financial crisis, as inflated mortgage-backed securities ratings helped fuel a US real estate bubble. In the aftermath of the crisis, Congress tasked the SEC with overseeing rating agencies, but the agency has struggled with oversight due to insufficient resources and technological changes, Reuters previously reported.
Morningstar has already paid $ 3.5 million to settle accusations by the SEC that it violates conflict of interest rules designed to separate credit ratings and analysis from sales and marketing.
U.S. laws require rating agencies to disclose their rating methodologies and stick to those frameworks, the SEC said on Tuesday. But according to SEC claims, Morningstar analysts have frequently made undisclosed adjustments to reduce stress applied to their models.
The changes benefited issuers who had paid for ratings, allowing them to pay less interest to investors, the SEC said.
The lawsuit was filed in the Southern District of New York against Morningstar Credit Ratings LLC. Morningstar Inc now manages credit ratings through its subsidiary DBRS Morningstar.