Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
"Mismarking": Developments in Valuation Fraud
One of the central business functions performed by an investment fund is the valuation of its positions. Knowing how much its investments are worth allows a fund to redeem investors at accurate levels, demonstrate performance to prospective investors, and charge an appropriate amount in fees. And while some positions can be easy to value — one need look no further than Bloomberg or the Wall Street Journal to know the going rate for, say, Apple stock — more exotic or illiquid holdings can present a challenge for even the most conscientious fund.
They also present an opportunity for fraud. At least according to the Department of Justice (DOJ), which has aggressively targeted valuation or "mismarking" fraud in a number of indictments brought within the last few years. But while these cases create headlines, these are far from easy prosecutions. Recent cases demonstrate the hurdles prosecutors must overcome and the effective defenses that can be raised when so much at trial comes down to whether reasonable judgment and good faith were used in marking a fund's books. And as the DOJ expands its mismarking inquiries beyond stocks and bonds and into areas like private equity, these cases also illuminate the increasing need for robust internal controls designed to eliminate the incentives for an employee or manager to overvalue assets.
Lumiere: "Overriding" the Pricing Services and the Motives to Mismark
From 2011 through 2013, Stefan Lumiere worked at hedge fund Visium Asset Management, which at its peak had a net asset value of approximately $8 billion. Lumiere was a senior analyst and a portfolio manager responsible for a significant portion of Visium's credit fund, which invested principally in bonds and other debt instruments. Like many investment professionals, Lumiere received a percentage of the profits he made on winning positions in the fund.
Many of the bonds in the fund were significantly illiquid — that is, purchases and sales of the bonds were rare. This made valuation tricky. Visium's back office would obtain best estimate market prices from a third-party pricing service, like Markit. But members of the investment team like Lumiere could "override" the pricing service by providing support for their preferred valuation. For example, a quote from an outside broker that it would buy or sell the bond at a given price would suffice.
This premium content is locked for Entertainment Law & Finance subscribers only
ENJOY UNLIMITED ACCESS TO THE SINGLE SOURCE OF OBJECTIVE LEGAL ANALYSIS, PRACTICAL INSIGHTS, AND NEWS IN ENTERTAINMENT LAW.
- Stay current on the latest information, rulings, regulations, and trends
- Includes practical, must-have information on copyrights, royalties, AI, and more
- Tap into expert guidance from top entertainment lawyers and experts
Already a have an account? Sign In Now Log In Now
For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
The Anti-Assignment Override Provisions
UCC Sections 9406(d) and 9408(a) are one of the most powerful, yet least understood, sections of the Uniform Commercial Code. On their face, they appear to override anti-assignment provisions in agreements that would limit the grant of a security interest. But do these sections really work?