SEC Sues Morningstar Over 'Adjustments' In CMBS Ratings

Law360 (February 16, 2021, 10:06 PM EST) -- The U.S. Securities and Exchange Commission filed an enforcement action on Tuesday against Morningstar Credit Ratings LLC for allegedly making undisclosed "adjustments" to ratings for $30 billion worth of commercial mortgage-backed securities transactions.

The securities regulator alleges that Morningstar, which had its operations folded into DBRS Inc. last year and remains a wholly owned subsidiary of Morningstar Inc., rated 30 CMBS transactions between 2015 and 2016 without disclosing that its ratings methodology allowed analysts to adjust property cash flow and valuation stresses on a "loan-specific" basis.

"By using the undisclosed adjustments, Morningstar often lowered the credit enhancement for many classes of...

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