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U.S. judge dismisses SEC lawsuit against Morningstar over undisclosed bond rating

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NEW YORK (Acesparks) – A U.S. judge on Wednesday narrowed the Securities and Exchange Commission’s lawsuit against Morningstar Inc., accusing it of allowing analysts to change credit rating models for nearly $ 30 billion in mortgage securities. refused, which led to a reduction in payments to investors.

Manhattan District Judge Ronnie Abrams said the SEC is confident that Morningstar Credit Ratings has failed to provide users with an overview of the commercial mortgage-backed securities (CMBS) valuation methodology and that there is no effective internal control over the rating process. claimed.

The judge also rejected the SEC’s claim that Morningstar could not identify the version of methodologies used to determine individual credit ratings.

Abrams also rejected the SEC’s request for a ban, noting that Morningstar Credit Ratings will no longer operate as a credit rating agency after DBRS merged with DBRS Inc. under the Morningstar brand.

Chicago-based Morningstar is also known for its investment research, including investment funds and asset management. Morningstar, his attorneys, and the SEC did not immediately respond to requests for comment.

Rating agencies were sharply criticized by investors and politicians during and after the 2008 global financial crisis, partly because of the rise in the housing bubble in the U.S. due to an increase in mortgage equity ratings.

In a complaint last February, the SEC said Morningstar violated securities laws by allowing analysts to make undisclosed adjustments to “key stresses” for 30 CMBS transactions in 2015 and 2016.

The SEC noted that this has sometimes benefited issuers who have paid for ratings by lowering the interest rates that investors owe.

In May 2020, Morningstar agreed to pay $ 3.5 million to settle SEC charges for violating conflict of interest rules designed to separate rating cases from sales and marketing.

Work SEC v Morningstar Credit Ratings LLC, U.S. District Court, Southern District of New York, № 21-01359.

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