Investment Fund Settles SEC Charges for Supervisory Failures Relating to Bond Valuation

A registered investment fund settled SEC charges for failing to implement its policies and procedures related to the valuation of securities prices that the company delegated to its investment adviser. The adviser settled related charges simultaneously (see related coverage).

In the Order, the SEC found that the fund failed to adopt and implement policies and procedures reasonably designed to oversee the adviser's role in valuing securities held by the fund and to implement related policies and procedures. The SEC found that the fund was responsible for monitoring the adviser's compliance with its investment guidelines, however the fund determined that the adviser maintained sufficient controls in light of its activities. The SEC also found that the fund was responsible for reviewing daily the pricing of its holding, which it failed to do.

As a result, the SEC found that the fund violated Section 206(4) of the Advisers Act ("Prohibited transactions by investment advisers") and IAA Rule 206(4)-7 ("Compliance procedures and practices").

To settle the charges, the fund has agreed to (i) a cease-and-desist order, (ii) a censure and (ii) a civil penalty of $300,000.