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(Reuters) — Kroll Bond Rating Agency LLC will pay $2.01 million, mainly in fines, to settle U.S. Securities and Exchange Commission civil charges that some of its practices were inadequate to ensure its ratings would be accurate, the regulator said on Tuesday.
The SEC said KBRA let analysts make adjustments that materially affected ratings for commercial mortgage-backed securities without requiring they have an analytical method or explain their rationale for the adjustments.
It also said KBRA’s ratings for collateralized loan obligation combination notes, which often combine a series of interest-paying securities and an unrated equity piece, did not reflect potential payouts from cash flows owed to noteholders.
“Ratings agencies play a crucial gatekeeping role in the securities market” and must enforce policies “to ensure the consistency and integrity of credit ratings,” Daniel Michael, chief of the SEC enforcement division’s complex financial instruments unit, said in a statement.
The payout by New York-based KBRA includes $1.85 million of civil fines, plus $164,836 of disgorgement and interest.
In a statement, KBRA said it stood behind the integrity of its ratings, methodologies and processes, and did not admit or deny wrongdoing.
Credit rating agencies assess companies and the securities they issue, and investors use the ratings to determine what securities are worth. Rating actions often move markets, and some investors are restricted from buying securities that lack credit ratings.
KBRA is among nine credit rating agencies registered with the SEC as nationally recognized statistical ratings organizations.
Fresh off the expiration of his noncompete agreement, Jules Kroll, founder and former executive chairman of corporate security firm Kroll Inc., said he plans to launch a new credit ratings agency that will challenge Standard & Poor's, Moody's and Fitch.