Securities and Exchange Commission examiners are finding instances of fund managers intentionally mispricing junk bond and small-cap stock mutual fund holdings in their ongoing investigations into the fund industry and may soon take action, Reuters reports.
These securities are particularly susceptible to manipulation because they are traded infrequently, therefore their values are difficult to determine. The whole scenario highlights the need for the Commission to provide further clarity to the industry on fair value pricing, something Paul Roye, the SECs director of the division of investment management, said is in the works.
"Some examinations involve pricing practices, such as with respect to mutual funds that hold difficult-to-price securities," Lori Richards, the Commissions director of the office of compliance inspections and examinations, said earlier this month.
Late last year, the SEC charged Heartland Advisors with fraud for allegedly deliberately mispricing junk bonds for months. The firm is contesting the charges.