More On Legal & Compliancefrom The Advisor's Professional Library
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The Securities and Exchange Commission on Tuesday charged an investment advisory arm of UBS with failing to properly price securities in three mutual funds that it managed, which resulted in a misstatement to investors of the net asset values of those funds.
Because the misconduct was revealed during the course of an SEC examination, it minimized harm to investors, the SEC says. In settling the charges without admitting or denying the SEC’s findings, UBSGAM agreed to be censured and to pay a $300,000 penalty.
The SEC’s Enforcement Division says that it began investigating UBS Global Asset Management (UBSGAM) following a referral from SEC examiners who conducted a routine exam of the firm, which is an SEC-registered investment advisor. “The SEC’s investigation further determined that during a two-week period, UBSGAM did not follow the mutual funds’ fair valuation procedures in pricing certain illiquid fixed-income securities in the portfolios of the mutual funds,” the division announced.
Merri Jo Gillette, regional director of the SEC’s Chicago Regional Office, said in a statement that UBS Global Asset Management “failed to fulfill one of its core delegated responsibilities on behalf of mutual funds it advises–to price securities in the mutual funds accurately.” Fortunately, she said, “this misconduct was brought to light quickly, so the duration was short and the harm to investors minimal.”
According to the SEC’s order instituting administrative proceedings against UBSGAM, the firm purchased on behalf of the mutual funds approximately 54 complex fixed-income securities in June 2008 at an aggregate price of approximately $22 million. "Most of the securities were part of subordinated tranches of nonagency mortgage-backed securities whose underlying collateral generally consisted of mortgages that did not conform to the requirements necessary for inclusion in mortgage-backed securities guaranteed or issued by Ginnie Mae, Fannie Mae, or Freddie Mac. The securities purchased also included asset-backed securities and collateralized debt obligations," the SEC says.
The SEC’s order finds that following the purchases, all but six of the securities were then valued at prices substantially in excess of the transaction prices, including many at least 100% higher.