Poor valuation procedures of illiquid securities prompted Ernst & Young LLP to blow the whistle on one of its mutual fund clients. In a report included with Van Wagoner Funds annual report to shareholders, Ernst & Young, a Chicago-based big five accounting firm, said the company had insufficient procedures in determining the valuations of private placement securities.

Van Wagoner’s lack of procedures and oversight amounted to "significant deficiencies in the design or operation of internal control that, in our judgement, could adversely affect the Funds’ ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements," Ernst & Young said in the report .

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.