The SEC is considering taking disciplinary action against firms that fail to follow fair-value guidelines for holdings with outdated prices, Commission officials told The Wall Street Journal.

Even with the fair-value pricing investigation in its infancy and the number of firms being probed not being released, the officials said that fair valuation, the estimation of holdings after prices have become outdated, is a key issue for the SEC since market timers often take advantage of the mispricing that occurs when fair-valuation is not used. The issue is particularly common in foreign stock-laden funds, thanks to the time differences.

In fact, the sources told The Journal that a full-fledged attack against fair-value transgressions might become the next theater upon the fund industry in the SEC’s ongoing war.

The crux of the investigation is this: Did fund companies not using fair-value methods offer the best available prices to shareholders?

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.