Egan-Jones Ratings, the credit ratings firm accused by former employees of grade inflation, won't be able to add asset-backed securities to its ratings portfolio after the Securities and Exchange Commission on Wednesday rejected its application to do so.

Egan-Jones didn't immediately respond to a request for comment. The firm still has permission from the SEC to rate other types of debt, including private credit, and remains a major provider of confidential "private letter ratings" to life and annuity insurers. A Wall Street Journal analysis recently found that about $40 billion in insurer investments carries ratings from the firm.

The SEC said it found inaccuracies in Egan-Jones's application to rate asset-backed securities, a type of structured investment increasingly favored by insurers. As part of Egan-Jones's application, two large investors attested that they had been relying on the firm's ratings of asset-backed securities for three years, the SEC said, but Egan-Jones was not issuing asset-backed security ratings during the full three-year periods those investors cited.