The SEC Pursues Fund Adviser and CFO for Missing Red Flags Associated With Rogue Employees and Fund Valuation
By John Nowak, Tram Nguyen, and Jeanette Kang
The Securities and Exchange Commission (‘‘SEC’’) recently announced that it settled charges against a registered investment adviser (the ‘‘Adviser’’) for allegedly mismarking thinly-traded, over-the-counter debt securities and, as a result, causing the Adviser’s funds to have inflated performance numbers and net asset values. The mismarking conduct was orchestrated by two former portfolio managers (‘‘PMs’’), who were convicted of or pleaded guilty to the conduct in 2016 and 2017. The SEC alleged, among other things, that the Adviser missed certain red flags and that the Adviser’s valuation practices were inconsistent with the description of those practices in its written policies and procedures.