Regulators take improper valuation and mispricing seriously, particularly when the party accused of doing so also allegedly tried to hide his actions. An advisory firm and commodity pool operator portfolio manager found this out the hard way after reaching settlements with both the SEC and the CFTC that together left him almost $850,000 poorer and […]
It sounds like the classic conflict of interest: An advisory firm manages both the seller and multiple prospective buyers in a real estate asset transaction. How can such an adviser possibly get the best possible deal for its clients on both sides?
Advisory firms that allocate expenses to clients contrary to written agreements should be prepared to face the possibility of an SEC investigation and enforcement action. That possiblity is magnified if the same firm is found to have improperly conducted reviews of client valuation models.
The SEC under former chair Mary Jo White stated quite clearly that it would take enforcement action not only against advisers and funds, but also against those it termed "gatekeepers:" attorneys, accountants, consultants and others. The agencys recent settlement with a firm providing valuation services shows that scrutiny is alive and well under chair Jay Clayton.
An adviser may believe in the value of a portfolio company. But when the adviser managing private funds with an interest in that company seeks investors for that company by overstating the portfolio companys and therefore the funds value, expect the SEC to come knocking.
Advisory firms may turn to third-party pricing services to provide valuation expertise that the adviser lacks. Dont let that claim of "expertise" stop you from considering how that third party will performs its job before retaining it, however. Failure to do so may result in more than some unpleasant numbers - as one advisory firm found out.
If youre going to fix a problem, make sure your fix will not land you in further trouble. That may be what one mutual fund adviser Calvert Investment Management is thinking after its October 18 settlement with the SEC.
Disclosure is a basic requirement of most SEC regulations. If you want a visit by the SEC, failure to disclose, particularly when it occurs more than once, is one of the best ways to ensure that you get one.
Valuation remains a hot-button issue with the SEC. Consider the agencys January 14 settlement with an investment company over charges that the fund unreasonably overstated the value of its interests in two companies it purchased, and that it misrepresented its valuation policy in doing so.