Yesterday, the SEC charged UBS Global Asset Management ("UBS") with failing to properly price securities in three mutual funds it manages, resulting in a misstatement to investors of the funds' NAVs. UBS, without admitting or denying the SEC's findings, has agreed to pay $300,000 to settle the charges. The alleged pricing violations were revealed during the course of a routine SEC exam.
According to the SEC, UBS failed to follow the funds' pricing procedures when valuing certain illiquid securities recently purchased by the funds. Although the pricing procedures required these securities to be priced at their transaction price or fair value, UBS allegedly used prices from broker-dealers and pricing vendors that substantially exceeded the recent price paid by the funds. Many prices used were 100% higher than the transaction price, and some were 1,000% higher. In addition, many of the quotes used were stale. By not following the prescribed valuation procedures, the SEC charged that UBS aided and abetted and caused the funds to violate 1940 Act rules that (1) require funds to implement compliance procedures, including pricing procedures, and (2) require funds to redeem and sell shares based on the net asset value of the fund.