SEC institutes administrative proceedings against eight registered fund directors for failure to properly oversee asset valuations

Abstract

Purpose

The purpose of this paper is to explain the meaning and impact of the US Securities and Exchange Commission's (SEC) December 10, 2012 enforcement action against former mutual fund directors for failing to properly oversee the valuation of mutual fund portfolio securities.

Design/methodology/approach

The paper provides an overview of the obligations of a board of directors with respect to the process used by a mutual fund to fair value portfolio securities that do not have reliable market prices, explains the background, factual circumstances and allegations set forth in the SEC enforcement order and emphasizes certain allegations made by the SEC that should cause mutual fund directors, investment advisers and compliance officers to review and refine certain aspects of the asset valuation policies and governance structure used in their mutual fund complex.

Findings

The SEC continues to prioritize mutual fund asset valuation enforcement actions. The SEC is willing and able to enter the board room to bring cases against independent directors, a path it has rarely taken in the past. While the facts underlying this enforcement action were extreme, mutual fund directors, compliance personnel and investment professionals should take immediate steps to review their asset valuation policies and related aspects of their governance structure to ensure that they comply with current rules, regulations, agency interpretations and accounting pronouncements, as well as best practices in the mutual fund industry.

Originality/value

The paper provides expert guidance from experienced investment management lawyers.

Citation

Strench, B. and Schellenger, J. (2013), "SEC institutes administrative proceedings against eight registered fund directors for failure to properly oversee asset valuations", Journal of Investment Compliance, Vol. 14 No. 1, pp. 29-31. https://doi.org/10.1108/15285811311321233