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Pepper Hamilton Client Alert: The SEC Is Scrutinizing Asset Valuations – Are You Ready?


The Securities and Exchange Commission (SEC) recently has set its sights on registered entities and their officers and directors for overvaluing the entities’ assets.
 

On October 17, 2012, the SEC charged Yorkville Advisors LLC (Yorkville), a $1 billion Jersey City, N.J. hedge fund firm, and two of its executives with scheming to overvalue assets and exaggerate reported returns in order to hide losses and increase fees collected from investors. On November 28, 2012, the SEC accepted Offers of Settlement from KCAP Financial, Inc. (KCAP), a closed-end business development company (BDC), and three of its officers. The SEC claimed that KCAP did not record and report the fair value of its assets in accordance with the Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (FAS 157). FAS 157 is now Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 820 (ASC Topic 820). More recently, on December 10, 2012, the SEC initiated proceedings against eight former members of the boards of directors overseeing five Memphis, Tennessee.-based mutual funds for violating their asset pricing responsibilities (Mutual Funds Action).

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*Mr. Pinkston is a law clerk in Pepper’s Commercial Litigation Practice Group, resident in the Philadelphia office. He is not admitted to practice law.