The SEC is committed to ferreting out improper valuation practices utilized by private equity fund managers and is willing to initiate action against employees engaged in such misconduct. See “SEC Asset Management Unit Chief Bruce Karpati Addresses Private Equity Enforcement Trends, Initiatives and Priorities
,” Hedge Fund Law Report, Vol. 6, No. 6 (Feb. 7, 2013). Towards this end, on August 20, 2013, the SEC instituted administrative and cease and desist proceedings against a former portfolio manager of a fund of private equity funds. The SEC generally alleges that the portfolio manager provided fund investors with misleading marketing materials – which misstated the fund’s internal rate of return and improperly valued one of the fund’s investments – and misled fund investors as to his own role in valuing the relevant investment. The SEC claims that the portfolio manager engaged in fraudulent and deceptive conduct in violation of the federal securities laws. This article summarizes the SEC’s factual allegations and charges. For a discussion of valuation best practices and related enforcement issues, see “DLA Piper Hedge Fund Valuation Webinar Covers Fair Value Methodologies, Valuation Services, Valuing Illiquid Positions and Handling Valuation Inquiries During SEC Examinations
,” Hedge Fund Law Report, Vol. 6, No. 31 (Aug. 7, 2013); and “WilmerHale and Deloitte Identify Best Legal and Accounting Practices for Hedge Fund Valuation, Fees and Expenses
,” Hedge Fund Law Report, Vol. 6, No. 28 (Jul. 18, 2013).