Valuation remains a perennial hot-button issue for the SEC. In a recent settlement order, the Commission charged an investment adviser and two of its principals with using unrealistic assumptions when valuing one of their funds’ major holdings and failing to discount the value of an inter-fund loan that had little hope of being repaid in full. The SEC asserted that these valuations were not only fraudulent, but also gave rise to a custody rule violation by rendering the funds’ financial statements non-compliant with generally accepted accounting principles. All investment advisers should pay attention to the lessons from this case in light of the SEC’s focus on valuation and the potential ramifications of violations. This article summarizes the SEC’s allegations, specific charges and the terms of the settlement. For coverage of other recent SEC actions involving improper valuations, see “Failure to Consider Relevant Market Inputs When Valuing Assets May Draw SEC Enforcement Action Against Fund Managers” (Apr. 20, 2017); and “SEC Settlement With PIMCO Highlights the Importance of Proper Valuation and Performance Disclosures” (Dec. 8, 2016).