SEC Charges GLG Partners With Internal Controls Failures

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The Securities and Exchange Commission (SEC) charged GLG Partners L.P., a hedge fund based in London and its former holding with internal controls failures that led to the overvaluation of its assets and higher fee revenues.

SEC says GLG Partners had internal controls failure

According to the SEC, GLG Partners and its former holding company conducted internal controls failure in managing GLG Emerging Markets Special Assets 1 Fund from November 2008 to November 2010. The mistake of the firms caused the overvaluation of the fund’s 25% stake in an emerging market coal mining company. As a result of the overvaluation, the GLG firms reported inflated revenue fees and overstated its assets under management (AUM) in its regulatory filings with the commission.

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Antonia Chion, associate director of the Division of Enforcement at SEC said,

“Investors depend upon fund advisers to have proper controls in place to ensure that valuations and fees are not inflated. GLG’s pricing committee did not have the information and time it needed to properly value assets.”

Asset valuation policies of GLG Partners

The SEC order indicated that the asset valuation policies of GLG Partners required that an independent pricing committee should determine the valuation of its position in the coal company every month.  The commission said that the firms received information requesting inquiry about the $425 million valuation for its stake in the coal company.

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According to the SEC, the GLG firms failed to provide adequate policies and procedures to ensure that the independent pricing committee would receive relevant information in a timely manner.

SEC emphasis on confusion among GLG’s fund managers

The SEC emphasized, “There was confusion among GLG’s fund managers, middle-office accounting personnel, and senior management about who was responsible for elevating valuation issues to the independent pricing committee. “

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According to the SEC, the London-based hedge fund and its former holding company violated certain rules and sections of the Securities Exchange Act of 1934. The GLG firms agreed to pay a penalty of almost $9 million to settle the case.

SEC ordered GLG Partners to hire an independent consultant

The SEC ordered the GLG Partners and its former holding company to hire an independent consultant to recommend new policies and procedures for the valuation of its assets. The firms were also required to test the effectiveness of the new policies and procedures following adoption.

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In addition, the firms were ordered to stop violating or causing violations of the various provisions of the federal securities laws. GLG Partners and its former holding company agreed to order without admitting or denying the charges. The Financial Conduct Authority in the United Kingdom helped the SEC in its investigation against the firms.

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