## Facts

- UBS Global Asset Management (Americas) Inc. (UBSGAM), a registered investment adviser, served as adviser to several registered investment companies (mutual funds).
- In June 2008, UBSGAM purchased about 54 fixed-income securities for the funds for an aggregate of roughly $22 million, largely subordinated tranches of non-agency mortgage-backed securities.
- The securities were illiquid (not exchange-listed or actively traded) and were valued using third-party pricing services.
- The funds maintained written valuation procedures requiring heightened action when a pricing-service value differed from the transaction price by 3% or more, including use of the transaction price for up to five business days, inquiry to the pricing service, and escalation to a Valuation Committee for fair-value determinations if unresolved.
- For a majority of the securities, pricing-service valuations materially exceeded transaction prices (often more than double, and in some cases more than ten times the transaction price).
- UBSGAM generally did not follow the funds’ written procedures; instead, it used pricing-service values during and beyond the five-business-day period without required inquiries or timely escalation.
- After delay, the Valuation Committee made fair-value determinations, generally selecting a midpoint between the transaction price and the pricing-service valuation.
- The funds’ NAVs were overstated for several days, causing fund shares to be sold and redeemed at inaccurate prices, affecting shareholders who transacted during the impacted period.
- The SEC instituted administrative cease-and-desist proceedings; UBSGAM consented to an order based on settlement without admitting or denying findings (except jurisdiction).

## Issues

1. Whether UBSGAM’s failure to follow board-approved valuation procedures caused the funds to violate Investment Company Act Rule 22c-1 by selling and redeeming shares at NAVs not reflecting current value.
2. Whether UBSGAM’s conduct caused or contributed to violations of Investment Company Act Rule 38a-1 by failing to implement written policies and procedures reasonably designed to prevent violations.
3. Whether sanctions and remedial relief were warranted under Investment Advisers Act § 203(e) and Investment Company Act §§ 9(b) and 9(f).

## Decision

- The SEC found (for settlement purposes) that UBSGAM caused the funds’ violations of Investment Company Act Rules 22c-1 and 38a-1.
- The SEC ordered UBSGAM to cease and desist from committing or causing violations and future violations of the cited provisions.
- The SEC censured UBSGAM and imposed adviser-related sanctions under Investment Advisers Act § 203(e).
- The SEC required monetary payments, including a civil penalty and investor-compensation relief designed to remediate harm from NAV misstatements.
- The SEC required undertakings to strengthen valuation-related policies, controls, pricing-service oversight, compliance testing, and reporting to fund boards and SEC staff.

## Legal Principles

- Mutual funds must price purchases and redemptions using the next-computed NAV under Rule 22c-1; NAV accuracy depends on proper valuation, including fair value when market quotations are not readily available.
- Board-approved valuation procedures are compliance controls; failure to implement them can constitute (and can cause) a Rule 38a-1 violation even if procedures are adequate on paper.
- Reliance on third-party pricing services does not relieve an adviser of responsibility to assess reasonableness, investigate anomalies, and escalate valuation discrepancies for fair-value action.
- Material departures between observable transaction prices and vendor prices require prompt scrutiny and documented resolution consistent with written procedures.
- Advisers may be sanctioned in SEC administrative proceedings for conduct that causes or contributes to fund violations, and remedial relief may include cease-and-desist orders, censure, penalties, restitution-like payments, and compliance undertakings.

## Conclusion

The SEC concluded that UBSGAM’s failure to execute the funds’ written fair-valuation procedures for illiquid fixed-income securities led to overstated NAVs and improper share pricing, causing violations of Rules 22c-1 and 38a-1 and justifying cease-and-desist relief, censure, monetary remedies, and mandated compliance enhancements.


In re UBS Glob. Asset Mgmt. (Ams.) Inc., Investment Company Act Release No. 29920 (SEC 2012)