Morningstar Inc. allowed credit rating analysts to adjust financial models that resulted in better conditions for bond issuers and, in some cases, less interest income for investors, the Securities and Exchange Commission claimed in a civil lawsuit on Tuesday -market.
The undisclosed adjustments were made to 30 $ 30 billion commercial mortgage-backed securities, the SEC said in the lawsuit filed in Manhattan federal court. The SEC claimed that the changes were significant, meaning that investors who trusted the ratings should have been informed about them.
Morningstar made an effort to become a major player in the bond rating business, buying rival DBRS Inc. from two private equity firms for $ 669 million in 2019. In May 2020, Morningstar paid $ 3.5 million to close a separate SEC application investigation it claimed that a former credit rating division violated the conflict of interest rules by mixing rating work with sales and marketing efforts.
Morningstar said in a statement that it followed all laws and rules. The SEC did not claim that credit ratings were wrongly determined, the company said. “The SEC overcame its regulatory limitations by imposing requirements that would regulate the substance of credit rating methodologies,” said the company. “Morningstar prides itself on the integrity and independence of its research and analysis. Morningstar will continue to be motivated by the goal of bringing clarity and diverse opinions to the market. “
Regulators have scrutinized credit rating companies and their conflicts of interest since the deal was criticized for giving optimistic assessments of troubled real estate securities prior to the 2008 financial crisis. issuers to seek the best ratings and hire a company that gives the most favorable grades.