Morningstar presses court to dismiss SEC's mortgage ratings lawsuit

  • 4/20/2021
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WASHINGTON (Reuters) - Ratings and research firm Morningstar Inc has asked a New York judge to dismiss a lawsuit filed by the top U.S. securities regulator over ratings of commercial mortgage-backed securities, according to a court document. The U.S. Securities and Exchange Commission (SEC) sued Morningstar’s former ratings business in February, saying the firm violated disclosure and internal controls requirements in 30 commercial mortgage-backed securities transactions from 2015 to 2016 when the agency allowed analysts to make undisclosed adjustments to key stresses in its modeling. The SEC “does not like that (the firm’s) former methodology included these adjustments” but Morningstar’s analytical independence is protected by Congress, lawyers for the company said in the filing, which was filed on Monday. Morningstar said the regulator is overstepping its authority and the firm met all disclosure requirements. A spokeswoman for the company declined to comment beyond the filing. An SEC official also declined to comment. Ratings agencies came under criticism after the last financial crisis as inflated ratings of mortgage-backed securities helped fuel a U.S. housing bubble. Congress later charged the SEC with overseeing the ratings agencies, but the agency struggled with the oversight due to insufficient resources and technology changes, Reuters has previously reported.

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