Firm Charged $5 Million for Misleading Disclosures
SEC Releases
Brief Introduction
On January 23rd, the SEC charged a firm five million dollars for misleading disclosures.
The firm provided a subscription service that provided daily price valuations for fixed-income securities.
What Was Discovered by The SEC?
- From 2016 through October 2022, the service provided pricing services for millions of securities across many different asset classes.
- In its disclosures, the firm reported that proprietary algorithms were the primary source of the independent valuations of fixed income securities.
- However, the firm failed to disclose that valuations for certain thinly-traded fixed income securities could come from single data inputs such as a broker quote.
- This failure to disclose made the overall disclosure materially misleading.
- The firm is required to pay $5 million in penalties.
Vigilant’s Final Conclusion
In order to help reduce risk in the future, it is important to have proper and complete footnoting about valuations.
Additionally, firms acting as a Valuation Designee under Rule 2a-5 should consider how they evaluate pricing service providers, and any implications from this settlement.
The SEC has made it clear with its aggressive regulatory agenda for 2023 that firms are expected to provide timely, detailed, and accurate disclosures to their customers.
It is vital that firms have policies and procedures in place that proactively address potential risks for regulatory burden.