May 16, 2021

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Morningstar presses court to dismiss SEC’s mortgage ratings lawsuit

The seal of the United States Securities and Exchange Commission hangs on the wall at the SEC headquarters in Washington on June 24, 2011. REUTERS / Jonathan Ernst / File Photo / File Photo

Rating and research company Morningstar Inc. (MORN.O) has asked a New York judge to dismiss under a court filing a complaint filed by the United States’s leading securities regulator over ratings of commercial mortgage-backed securities.

The US Securities and Exchange Commission sued Morningstar’s previous ratings business in February, stating that the company violated disclosure and internal control requirements on 30 commercial mortgage-backed securities transactions between 2015 and 2016 when the agency allowed analysts to make undisclosed adjustments to key loads in its modeling. Continue reading

The SEC “doesn’t like that the previous methodology (the firm’s) included these adjustments,” but Morningstar’s analytical independence is protected by Congress, attorneys for the company said on the file filed Monday. Morningstar said the regulator is exceeding its authority and the company is complying with all disclosure requirements.

A company spokeswoman declined to comment beyond filing. An SEC official also declined to comment.

Rating agencies came under fire after the last financial crisis, as inflated ratings of mortgage-backed securities fueled a US housing bubble. Congress later hired the SEC to oversee the rating agencies, but the agency struggled with oversight due to insufficient resources and technological changes, Reuters previously reported.

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