Investment Adviser Settles SEC Charges for Misrepresenting Daily NAV

An investment adviser settled SEC charges for misrepresenting the daily net asset value thereby inflating the performance, of its affiliated investment fund.

In the Order, the SEC found that the adviser provided prices to its advisory fund for odd-lot bonds that were intended to be valuations for round-lot bonds, thus overstating the fund's daily net asset value by over 7 percent and inflating its performance. As a result, the adviser provided materially inaccurate information regarding the sources of the fund's performance to investors. Further, the SEC found that the adviser failed to reasonably implement sufficient supervisory policies and procedures with respect to odd lot bonds designed to prevent it from making misleading statements to investors regarding the sources of its performance.

As a result, the SEC found that the firm violated (i) Section 206(4) of the Advisers Act ("Prohibited transactions by investment advisers"), (ii) Section 34(b) of the Investment Company Act ("Unlawful representations and names"), (iii) IAA Rule 206(4)-7 ("Compliance procedures and practices"), (iv) IAA Rule 206(4)-8 ("Pooled investment vehicles") and (v) ICA Rule 22c-1 ("Pricing of redeemable securities for distribution, redemption and repurchase").

To settle the charges, the firm agreed to (i) a censure and (ii) pay a civil penalty of $3,500,000.

The investment fund settled related SEC charges simultaneously (see related coverage).