SEC Sues Hedge Fund Manager for Over-Valuing Side-Pocket Securities
he SEC has sued a hedge fund manager and its principals for overvaluing illiquid securities placed in a side pocket. The SEC alleges that the manager sought permission from investors to create the side pocket for the securities but misled investors about the true valuation and failed to inform them about underlying transactions. The SEC claims that the manager then calculated NAVs using a valuation for the side pocket securities that was far greater than internal figures and used a methodology contrary to the valuation procedure disclosed in the PPM and the financial statements. The SEC says that the inflated valuations allowed the manager to take unauthorized fees and show false performance.
OUR TAKE: The SEC has previously indicated that fund side pockets will receive greater scrutiny during exams. As described in this case, firms need to make sure all material (negative) information is disclosed and that the valuations are realistic (conservative).
Posted by Todd Cipperman at 10/20/2010 7:30 AM 
Categories: Funds
Tags: side pocket valuation hedge fund illiquid securities
Categories: Funds
Tags: side pocket valuation hedge fund illiquid securities
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