On 25 February 2026,1 the SEC, in one of the few cases brought to-date against a private fund adviser under Chair Atkins, settled charges with a private fund adviser regarding its valuation practices. This case involved conduct dating back to the early days of the COVID market dislocations, with the SEC finding that the adviser failed to adequately fair value loans it originated and later sold to private fund clients in principal transactions despite significant changes in markets caused by the pandemic.
Valuation Practices
The adviser originated loans, “seasoned” them for 30-60 days, and then sold those loans to fund clients in principal transactions. The fund documents required the adviser to sell at “fair market value” as determined by the adviser. The adviser’s valuation policy considered fair market value to be the loan’s purchase price (adjusted by relevant discounts and fees), subject to market adjustments in the adviser’s sole discretion. Because these sales were principal transactions, the adviser engaged a third-party independent agent to provide the requisite consent on behalf of the funds.
The SEC found that the independent agent relied on a certification from the adviser that the transaction was fair valued and that the adviser failed to reassess valuation in light of significant market disruptions. Although the valuation policy did not expressly require adjustments, the SEC found that the adviser breached its fiduciary duty and that this conduct violated sections 206(2) and (4) of the Adviser’s Act and rule 206(4)-8, because the adviser had not taken steps to reasonably determine the effect of the market disruptions.
Takeaways
While the conduct here may be old, the settlement demonstrates that the SEC is focused on private fund advisers, particularly as to valuation, conflicts of interest, principal transactions and fees. Despite the adviser remediating and reimbursing the funds more than US$5,000,000, the adviser still paid a US$900,000 penalty to resolve the matter.
1 SEC.gov | SEC Charges Illinois Investment Adviser for Breaching Its Fiduciary Duty and Contravening Its Disclosures
