$300,000 for Not Following Valuation Procedures


A large mutual fund sponsor agreed to pay a $300,000 fine for failing to follow its own fair valuation procedures.

According to the SEC, the firm's procedures required the Fair Value Committee to make a fair value determination when broker quotes differed from transaction prices. The SEC charges that the firm continued to use broker quotes for nearly a month, even though the broker quotes were not accurate or stale. As a result, the Fund’s NAV was misstated for several weeks.

OUR TAKE: This action shows the importance of following your own procedures. The SEC did not specifically charge that the valuations were incorrect or that the procedures were insufficient. Instead, it charged that the respondent failed to follow its own documented procedures.