(Yicai Global) Aug. 22 --China's securities regulator penalized China'first credit evaluating agencyDagong Global Credit Ratingthis weekfortaking payments from 31 firms to boost their scores,Shanghai Securities News reported.

Founded in 1994,Beijing-basedDagong isauthorized to issue credit ratings for all debt instruments--exceptsovereignbonds--and entitiesactivein China'scapital markets.China's securities regulator suspended Dagong from engaging in new securities rating business for a yearon Aug. 17after it was found to have poor internal management andtohave providedissuers with both consulting and rating services.

Dagong and its affiliatesoffered consultingservices to 13 fundraising firms,Tunghsu Groupamong them, charging total fees of over CNY78 million(USD10 million), and to 18 corporate bond issuers, charging total fees of over CNY120 million.

Dagong signed a CNY9.7 million service contract with Tunghsu, Neoglory Holdings Group andJiangsuNantong Sanjian Holdings (Group), respectively,to help them build an enterprise credit management system. The three agreed todisburseasetamount eachyearfor the relevant enterprise credit management reports. The three issuers quickly paid in full or nearly in full, insiders said. Dagong raised their ratings soon after receiving thesepayments.

The CNY9 million consulting fees were much higher not only thantherating service fees Dagonggenerally charges,but also than the common chargesfor such services by its peersin the sector.Itnormallycosts about CNY100,000(USD12,750)to have agencies issue a rating for a single entity and CNY150,000 for a single debt.

Dagong revised Neoglory's entity rating from'AA stable'to'AA+ stable'two working days after it paid the fees, whilebothNantong Sanjian's entity and bond ratings were upgraded from AA to AA+ a few months after it signed a consulting service agreement with Dagong.

The practice of directly linking credit ratings with consulting services fees is commonly referred to as'selling ratings.'Suchapractice not onlycontravenesthe principle of independence,but also is expressly prohibited by self-disciplinary rules in the interbank market.

Theself-regulatingNational Association of Financial Market Institutional Investorsmadeclearin January 2013 that credit rating agencies and their staffmaynot engage in illegal transactions or commercial bribery or provide services that could affect credit rating quality such as consulting services to companies seeking ratings.

The Beijing-based firm's management is in disorder, the China Securities Regulatory Commissioncharged Aug. 17. Dagong also furnished false information in materials submitted to the regulator, it added,andthe company cannot bedeemed independent after offering paid services to thedebt instrumentissuers itrates.

The company is thus charged with both legal and ethical violations.

Editor: Ben Armour