SEC Charges Private Credit Adviser Over Valuations
SEC Releases
Introduction
On February 25, 2026, the SEC charged an RIA specializing in Private Credit and Loan Investments with violating the Investment Advisers Act of 1940.
The case centers on how the Firm priced loans it sold to investment funds it managed during the early months of the COVID-19 market disruption in 2020.
Key Takeaways
- Improper Loan Pricing:
- During market volatility, the Adviser sold loans to funds it managed at prices that did not reasonably reflect fair market value.
- Advisory Agreements and Disclosure Failures:
- The Firm’s Advisory Agreements and Offering Documents stated that transactions would occur at fair market value. However, its pricing practices did not align with those representations during the relevant period.
- Violations:
- The SEC found that the Firm violated anti-fraud provisions of the Advisers Act by failing to adhere to its stated valuation practices and by engaging in transactions that operated as a fraud or deceit on its advisory clients. The Commission determined that the firm’s pricing approach, which did not reasonably reflect market conditions, was inconsistent with its fiduciary obligations and the representations made to investors.
- Remediation & Penalties:
- The Firm repaid approximately $5 million plus interest to affected funds, agreed to a cease-and-desist order, was censured, and must pay a $900,000 civil penalty, which will be distributed to investors through a Fair Fund.
Vigilant’s Conclusion
This action serves as a reminder that Investment Advisers, particularly those managing Private Credit strategies, must ensure pricing practices match their disclosures and contractual obligations. Valuation methodologies should be consistently applied, well-documented, and responsive to changing market conditions. When Firms engage in transactions with affiliated or advised funds, conflicts of interest must be carefully managed and clearly disclosed.
Periods of market disruption do not lessen fiduciary duties. In fact, they heighten regulatory scrutiny. Strong internal controls, independent oversight of valuation processes, and alignment between operations and disclosure documents are critical to mitigating risk and maintaining investor trust.