SEC accuses fund directors of breaching their valuation duties

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In a case involving fair valuation of structured notes, the SEC signaled that when investment company fund boards delegate the responsibility to fair value portfolio securities, they must provide “meaningful substantive guidance” and continuously review the appropriateness of valuation methodologies. On 10 December 2012, the Commission announced charges against eight former members of the board of directors of several closed-end and open-end registered investment companies. The Commission alleges that the directors failed to properly fair value a majority of the funds’ portfolio holdings from January 2007 until August 2007. The funds’ investment adviser settled charges in 2011 based on the same set of facts.

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