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Vedder Thinking | Articles SEC Settles Charges Against Mutual Fund Sub Adviser for Overvaluing Odd Lot Bonds


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On June 3, 2022, the SEC announced the settlement of an administrative proceeding brought against a registered investment adviser for alleged violations relating to the valuation of certain bonds purchased in “odd lots” for a mutual fund it sub-advised. As a result, the sub-adviser is alleged to have caused the fund to overstate its daily net asset values and performance returns and to execute transactions in fund shares at those overstated values.

From May 2015 through July 2015, the sub-adviser purchased for the fund various “odd-lot” bonds, which tended to trade in smaller quantities and at a discount compared to bonds traded in larger quantities. However, the SEC alleged that the fund valued those bonds at the higher prices provided by a third-party pricing vendor intended for “round-lot” positions. The SEC alleged that the overvaluation of the odd-lot bonds caused the fund to overstate its daily net asset values and performance returns until at least March 2016. The SEC also alleged that the sub-adviser failed to adopt and implement policies and procedures to address its valuation responsibilities and that, as a result, the fund made misleading statements to investors in public filings and marketing materials by relying on the overstated performance information. In addition, the SEC alleged that from January 2017 to February 2019, the sub-adviser submitted bids to brokers on bonds already held by the fund at prices higher than those provided by the pricing vendor in an effort to raise the marks provided by the pricing vendor and thereby boost the fund’s net asset value.

In settlement of the charges, without admitting or denying the findings set forth in the SEC’s order, the sub-adviser agreed to a censure, to cease and desist from violating applicable provisions of and rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 and to pay a civil monetary penalty of $3.5 million.

A copy of the SEC’s order is available here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt