UBS Global Asset Management to Pay $300,000 to Settle SEC Charges Related to Alleged Mutual Fund Price Violations

The Securities and Exchange Commission says that UBS Global Asset Management will pay $300,000 to resolve charges that it did not give securities in three mutual fund portfolios the proper price. This alleged failure caused investors to receive a misstatement regarding the funds’ net asset values. By agreeing to settle the charges, UBSGAM is not admitting to or denying the findings.

The SEC start investigating UBSGAM after SEC examiners conducted a routine check of the financial firm. According to its order, in 2008 UBSGAM bought about 54-complex fixed-income securities of $22 million, which was an aggregate purchase price. The majority of the securities were part of subordinated tranches of nonagency MBS with underlying collateral, which were were mortgages that weren’t in compliance with requirements to be part of MBS-guaranteed or to have been issued by Fannie Mae, Freddie Mac, or Ginnie Mae. CDO’s and asset-backed securities were among these securities.

After the securities were bought, 48 of them were priced substantially over the transaction price. This is because the pricing sources that provided the valuations to UBSGAM didn’t appear to factor in the price that the funds paid for the securities. Some quotations were not priced on a daily basis, while others were formulated using ending price from the last month. It wasn’t until over 2 weeks after UBSGAM started getting price-tolerant reports pointing out such discrepancies that it’s Global Valuation Committee finally met.

By using the prices that the 3rd party pricing service or a broker-dealer provided, the SEC contends that the mutual funds did not abide by their own valuation procedures, which mandate that the securities use the transaction price value until the financial firm makes a fair value determination or gets a response to a price challenge based on the discrepancy noted in the price tolerance report. The transaction price can be used for 5 business days, when a decision would have to be made on the fair value. The SEC concluded that by not making sure that these procedures were being followed, the financial firm caused the mutual funds to violate the Investment Company Act’s Rule 38a-1.

The SEC also determined that due to the securities not being timely or properly priced at fair value for a number of days in 2008, the funds were misstated (up to 10 cents in some cases) and they were then purchased, sold, or redeemed based on NAVs that were not accurate and higher than they should have been.

Read the SEC’s Order Against UBS (PDF)

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Please contact our securities fraud attorneys to request your free consultation. Shepherd Smith Edwards and Kantas, LLP represents investors throughout the US.