Large Mutual Fund Manager to Pay Over $40 Million for Mis-Pricing MBS for Fund’s NAV
A large mutual fund manager agreed to pay over $40 Million in investor reimbursements, fee disgorgement, and penalties in connection with mis-pricing mortgage-backed securities in a short term bond fund. The SEC has alleged that the mis-pricing resulted in an artificially inflated NAV, resulting in material misstatements to investors, incorrect performance claims, and excessive fees. The SEC has charged that the manager ignored widely available information about security valuation during its fair valuation process and withheld material information from the Fund’s Valuation Committee. The SEC also charged the affiliated distributor with failing to prevent the misuse of material non-public information because it selectively disclosed re-pricing information.
OUR TAKE: The SEC wants to see a reasonable and transparent valuation process. There is no defense to withholding valuation information and selectively disclosing pricing decisions.