SEC Launches Valuation Action Against Fund Sponsor, Portfolio Manager, and Fund Accounting Head
The SEC has instituted enforcement proceedings against a mutual fund sponsor, a portfolio manager and the head of fund accounting in connection with valuation of securities backed by sub-prime mortgages. The SEC charges that the fund sponsor failed to follow its own procedures when allowing the portfolio manager to issue price overrides that ultimately went into NAV calculations. The SEC argues that the head of fund accounting ignored several red flags, which allowed the price overrides and an incorrect NAV. The respondents have been charged with violations of the anti-fraud rules with respect to statements made in the funds’ shareholder reports and Sarbanes-Oxley certifications. The SEC has also charged violations of Rule 206(4)-7 and Rule 38a-1.
OUR TAKE: The SEC has previously targeted fund sponsors and portfolio managers in connection with valuation actions. What’s unique to this case is the focus on the head of fund accounting, and the SEC’s creation of a duty to monitor portfolio manager valuation decisions.