Morningstar Inc. (search) , the firm that millions of investors rely on to rate the performance of mutual funds, is under investigation by the Securities and Exchange Commission (search) for failing to properly correct inaccurate data it published about a mutual fund.

Morningstar said it received a so-called Wells Notice from the SEC on May 24, indicating that the SEC was considering civil action against the company for violating U.S. securities laws.

Morningstar chairman and chief executive Joe Mansueto said Friday the probe is over incorrect total returns published by Morningstar regarding the Rock Canyon Top Flight Fund (search).

"We believe the heart of the SEC's concern relates to our timeliness in correcting the data during the nine business days from March 12 to March 23," Mansueto said in a written statement.

Mansueto said an employee of the fund transfer agent for Rock Canyon Top Flight sent an e-mail to a Morningstar data analyst, asking Morningstar to update the information regarding historical net asset values, or NAVs, for the fund in late February.

The fund transfer agent said Morningstar's information was not accurate and portrayed the fund in a negative manner, according to Mansueto.

But Morningstar believes an employee of the fund or the transfer agent saw a graph of fund prices on a Web site that wasn't from Morningstar.

"Perhaps wanting to correct the perceived decline, the transfer agent prepared a table of adjusted NAVs that compensated for the fund's December distribution and forwarded the adjusted NAVs to Morningstar," Manseuto said.

The adjusted NAVs were allegedly entered into Morningstar's database, which caused the fund's returns to be overstated.

But on March 12, the fund transfer agent allegedly sent a second e-mail suggesting that the returns were inflated and attached the same file sent in February. Morningstar said it left the data as it was.

"We researched the second request to change the data, but again thought the transfer agent's request was for us to use the adjusted NAVs," Mansueto said.

Efforts to reach Jonathan Ferrell, manager of the Top Flight Fund, weren't immediately successful.

On March 23, the SEC said Morningstar's total return data was wrong.

"We promptly changed the data back to the original, correct data we had reported in the first place. We continued to have discussions with the SEC during this time," Mansueto said.

The following day, Morningstar received a Wells Notice (search) from the SEC indicating that it was considering an action against Morningstar related to the incorrect data.

The Wells Notice provides the recipient the opportunity to present facts and arguments against the start of such action.

Mansueto believes that Morningstar's data collection process worked.

"We had properly calculated the fund's returns. Unfortunately, in an effort to be responsive to the transfer agent's instructions, we overrode our correct returns," Mansueto said.

Chicago-based Morningstar, which reported sales of $139.5 million in 2003, is best known for its ratings of stocks, mutual funds and other investments.