## Facts

- Oppenheimer Asset Management Inc. (OAM) and Oppenheimer Alternative Investment Management, LLC (OAIM) were registered investment advisers that managed Oppenheimer Global Resource Private Equity Fund I, L.P. (OGR), a private-equity fund of funds.
- OGR’s offering and marketing materials represented that OGR’s investments would be valued based on valuations provided by underlying fund or investment managers.
- OGR’s largest holding was Cartesian Investors-A, LLC (Cartesian).
- In October 2009, OGR’s portfolio manager changed Cartesian’s valuation method to one different from the underlying manager’s method, materially increasing Cartesian’s reported value and OGR’s reported performance.
- From October 2009 through 2010, respondents disseminated marketing materials and quarterly reports that did not disclose the valuation-method change and that presented OGR performance as though it reflected underlying-manager valuations.
- OAIM marketing personnel attributed Cartesian’s increased value to performance rather than to the valuation-method change.
- Marketing personnel also represented that a third-party valuation firm retained by Cartesian’s underlying manager had written up Cartesian’s value, although that did not occur.
- Marketing personnel stated that underlying funds were independently audited, though that was not true for all underlying funds.
- Respondents’ written compliance policies required compliance review of marketing materials but did not require review of portfolio-manager valuations and were found not reasonably designed to ensure valuations matched written representations.
- The SEC instituted settled administrative cease-and-desist proceedings; respondents consented to findings (without admitting or denying them, except jurisdiction) and to sanctions and undertakings.

## Issues

1. Whether respondents made material misrepresentations or omissions to investors and prospective investors about OGR’s valuation practices and performance, in violation of Securities Act § 17(a)(2)–(3).
2. Whether respondents failed to adopt and implement written policies and procedures reasonably designed to prevent Advisers Act violations, in violation of Advisers Act § 206(4) and Rule 206(4)-7.

## Decision

- The SEC found respondents violated Securities Act § 17(a)(2) and § 17(a)(3) by making untrue statements of material fact and omitting material facts concerning valuation practices, performance attribution, third-party valuation involvement, and audit status.
- The SEC found respondents violated Advisers Act § 206(4) and Rule 206(4)-7 by failing to adopt and implement reasonably designed policies and procedures, including controls addressing valuation and consistency between valuations and marketing disclosures.
- The SEC ordered respondents to cease and desist from further violations of the cited provisions.
- The SEC imposed censure, disgorgement, prejudgment interest, civil penalties, and compliance undertakings to improve valuation governance and marketing oversight.

## Legal Principles

- Statements about valuation methodology and performance of a private fund can be material; deviating from disclosed valuation sources or methods can make performance reporting misleading.
- Antifraud liability under Securities Act § 17(a)(2)–(3) may be based on material misstatements or omissions in the offer or sale of securities without requiring scienter.
- An adviser’s compliance program must include written policies and procedures reasonably designed to prevent violations; controls that review marketing materials but omit oversight of valuation inputs may be inadequate where valuations drive reported performance.
- Advisers can be held responsible for misleading marketing and reporting that attributes performance changes to investment results when the primary driver is a valuation-method change.

## Conclusion

The SEC concluded that the advisers’ undisclosed change to the valuation of a key holding, coupled with inaccurate marketing statements and weak valuation-related compliance controls, resulted in material misstatements and omissions and a failure to maintain reasonably designed policies and procedures, warranting cease-and-desist relief, monetary sanctions, and remedial undertakings.


In re Oppenheimer Asset Mgmt., Inc., Investment Advisers Act Release No. 3566 (S.E.C. 2013)