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SEC Fines Alternative Fund Manager for Valuation, Disclosure Issues

The SEC recently announced that Equinox Fund Management agreed to settle charges related to alleged valuation and disclosure violations related to a managed futures fund for which it is the commodity pool operator and managing owner. According to the SEC, Equinox overcharged investors by calculating the management fee using the notional trading value of the fund’s assets rather than the net asset value, unfairly benefiting from the inclusion of the notional value of the fund’s leverage.

Additionally, Equinox failed to corroborate its valuation of certain derivatives with counterparty settlement values as its methodology required and instead used a valuation that “was substantially higher than the counterparty’s valuations.” Equinox also transferred an option between series in a manner inconsistent with other options transfers and failed to disclose on its 10-Q “the series’ early termination of an option that constituted its largest investment at a materially lower valuation than had been recorded for that option” as a material event.

To settle the charges, Equinox agreed to refund investors approximately $5.4 million in overcharged management fees plus interest and a $400,000 penalty.