SEC Obtains Final Judgment Against Individual for Valuation Fraud

The U.S. District Court for the Southern District of New York issued a final judgment against a former senior officer of an investment adviser charged in a scheme to overvalue a mutual fund and hedge fund that the firm advised.

In the Complaint, the SEC alleged that the firm's founder and former Chief Investment Officer manipulated the valuation models available from a third-party pricing service and altered inputs to mask the poor performance of the mutual fund and hedge fund. The SEC further alleged that the individual negligently misrepresented to investors and potential investors, representatives of the mutual fund's board, and others that the pricing service was "independent" of the adviser; the SEC said the adviser's founder exercised control over the pricing service. The SEC determined that at the founder's direction, the individual helped to submit misleading documents to the SEC staff and helped the founder mislead the mutual fund's auditor.

The SEC charged the individual with violations of the Securities Act Section 17(a) ("Records and Reports"), SEA Rule 13b2-2 ("Representations and conduct in connection with the preparation of required reports and documents"), and IAA Sections 204(a) ("Reports by Investment Advisers"), 206(2) and 206(4) ("Prohibited transactions by investment advisers") and 207 ("Material misstatements"), and Rules 204-2(a), 206(4)-7 and 206(4)-8.

In the final judgment, the Court (i) permanently enjoined the individual from violations of the Securities Act, (ii) ordered him to pay a civil penalty in the amount of $100,000 and (iii) issued a bar for two years preventing the individual from serving as an officer or director of any SEC-reporting company.