SEC Charges Registered Investment Adviser with Overvaluing Certain Securities

In September, the Securities and Exchange Commission (SEC) charged Macquarie Investment Management Business Trust with overvaluing certain, largely illiquid collateralized mortgage obligations (CMOs) held in advisory accounts, as well as eleven retail mutual funds, and for executing numerous cross trades between advisory clients that the SEC stated, “favored certain clients over others.”

From January 2017 through April 2021 Macquarie managed a fixed-income strategy that primarily invested in mortgage-backed securities, CMOs, and Treasury futures. These investments included odd lots, an order amount for a security that is less than the normal unit of trading for that particular asset, that traded at a discount to larger institutional-size positions. When valuing the odd lot CMOs, Macquarie relied on the institutional lot pricing rather than the odd lot pricing, which was provided by a third-party pricing servicer. The order also found that Macquarie arranged cross trades with affiliate accounts, including eleven retail mutual funds which absorbed the losses from the CMO securities.

Macquarie settled the charges and will pay over $79 million in penalties, disgorgement, and pre-trial interest. Eric I. Bustillo, Director of the SEC’s Miami Regional Office noted that “utilizing a third-party pricing service does not negate an investment adviser’s obligation to value assets accurately.”

Click here to read the SEC press release covering the charges.