More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
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.