The SEC announced charges against eight former members of the
boards of directors overseeing five Memphis, Tenn.-based mutual funds for
violating their asset pricing responsibilities under the federal securities
laws.
The funds, which were invested in some securities backed by
subprime mortgages, fraudulently overstated the value of their securities as
the housing market was on the brink of financial crisis in 2007. The SEC and
other regulators previously charged the funds’ managers with fraud, and the
firms later agreed to pay $200 million to settle the charges.
Under the securities laws, fund
directors are responsible for determining the fair value of fund securities for
which market quotations are not readily available. According to the SEC’s order
instituting administrative proceedings against the eight directors, they
delegated their fair valuation responsibility to a valuation committee without
providing meaningful substantive guidance on how fair valuation determinations
should be made. The fund directors then made no meaningful effort to learn how
fair values were being determined. They received only limited information about
the factors involved with the funds’ fair value determinations, and obtained
almost no information explaining why particular fair values were assigned to
portfolio securities.
More details are available at SEC Charges Eight Mutual Fund Directors for Failure to Properly Oversee Asset Valuation.“Investors rely on board members to establish an accurate process for valuing their mutual fund investments. Otherwise, they are left in the dark about the value of their investments and handicapped in their ability to make informed decisions,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Had the board not abdicated its responsibilities, investors may have stood a better chance of preserving their hard-earned assets.”
