The Securities and Exchange Commission announced Tuesday that it fined UBS Global Asset Management $300,000 for overvaluing 48 mortgage-backed securities purchased for $22 million.
This resulted in UBS overpricing the funds’ net asset values by between one and 10 cents for several days in June, the SEC said.
“The securities were valued during this period using valuations provided by broker-dealers or a third-party pricing service that did not appear to take into account the prices at which the funds had purchased the securities,” the SEC said.
After purchasing the securities between June 5 and June 25, “UBSGAM did not fair value the securities until it held a meeting of the Global Valuation Committee (GVC) on June 30, 2008—more than two weeks after UBSGAM began receiving 'Price Toleration Reports' identifying discrepancies between the purchase prices and the valuation of the securities based on the pricing sources,” the Commission said.
“By initially using the valuations provided by the pricing sources instead of the transaction prices, the funds did not follow their own written valuation procedures,” the SEC order said. UBS’ internal rules and procedures were to use the transaction price for up to five days until, in the event of a price discrepancy with an outside pricing source, the securities’ actual fair value could be determined.
The SEC’s Enforcement Division began investigating UBS after an SEC exam, through its Office of Compliance Inspections and Examinations unit, uncovered the pricing errors. The SEC found that the quotations from broker-dealers for 28 of the securities were more than 100% higher than the transaction prices—and in some cases, the prices were inflated by more than 1,000%
The third-party pricing sources that UBS used, which were not named in the suit, were inflated as well, the SEC said. The three affected mutual funds were not named, either.
“UBS Global Asset Management failed to fulfill one of its core delegated responsibilities on behalf of mutual funds it advises—to price securities in the mutual funds accurately,” said Merri Jo Gilette, regional director of the SEC’s Chicago Regional Office. “Fortunately, this misconduct was brought to light quickly, so the duration was short and the harm to investors minimal.”
"UBS Global Asset Management is pleased to have resolved this issue with the SEC,'' said spokesperson Karina Byrne.
The firm said it relied on pricing data from independent third parties, rather than the purchase price, to value a group of mortgage-backed securities purchased by a small number of its mutual funds in the United States.
"The impact on those funds was minimal,'' Byrne said. "As a matter of course, the firm regularly reviews its procedures in an effort to ensure its valuations and pricing are as accurate as possible.”