An investment adviser has been ordered to pay tens of millions of dollars for overvaluing thousands of largely illiquid collateralized mortgage obligations (CMOs) and giving preferential treatment to clients.
Macquarie Investment Management Business Trust (MIMBT) will pay $79.8 million to settle charges for overvaluing approximately 4,900 largely illiquid CMOs held in 20 advisory accounts, including 11 retail mutual funds, the Securities and Exchange Commission said on Thursday.
MIMBT was also charged with executing hundreds of cross-trades between advisory clients that favored certain clients over others.
MIMBT managed the Absolute Return Mortgage-Backed Securities strategy, a fixed-income investment strategy primarily invested in mortgage-backed securities, CMOs and treasury futures from January 2017 through April 2021.
Strategy investments included thousands of smaller-sized, "odd lot" CMO positions that traded at a discount to institutional, larger-sized positions. MIMBT valued the odd lot CMOs using prices obtained from a third-party pricing service that were intended for institutional lots only.
The order finds that MIMBT had no reasonable basis to believe it could sell the odd lot CMOs at the pricing vendor's valuations, and thousands of odd lot CMO positions were marked at inflated prices. This resulted in MIMBT overstating the performance of client accounts holding the overvalued CMOs.
The order further finds that MIMBT attempted to minimize losses to redeeming investors by arranging cross-trades with affiliated accounts, rather than selling the overvalued CMOs into the market.
Accounting Firm Fined $2M
Prager Metis CPAs, LLC and its California professional services firm, Prager Metis CPAs LLP agreed to pay $1.95 million to resolve two actions alleging misconduct in audits of now-defunct crypto asset trading platform, FTX, and auditor independence violations.
Prager allegedly misrepresented compliance with auditing standards regarding FTX from February 2021 to April 2022 by issuing two audit reports for FTX that falsely misrepresented compliance with Generally Accepted Auditing Standards.
The SEC alleged that Prager failed to follow GAAS and its own policies and procedures by not adequately assessing whether it had the competency and resources to undertake the FTX audit.
The SEC's complaint charges Prager with negligence-based fraud. Prager agreed to permanent injunctions, to pay a $745,000 civil penalty and retain an independent consultant to review and evaluate its audit.
Prager was also ordered to pay $1.205 million to settle separate, previous charges for violating auditor independence rules and aiding and abetting clients' violations of federal securities laws.
The SEC's complaint alleged that, between approximately December 2017 and October 2020, the Prager Entities improperly included indemnification provisions in engagement letters for more than 200 audits, reviews and exams that were not independent from their clients.
Executives Charged With Misrepresenting Revenue
The SEC on Tuesday filed charges against former Kubient Inc. execs for carrying out a scheme in which Kubient overstated and misrepresented its revenue tied to two public stock offerings.
The SEC specifically called out Paul D. Roberts, the former chairman, CEO, and president; Joshua A. Weiss, former CFO; and Grainne M. Coen, the company's former audit committee chairman,
Roberts allegedly wrote up reports that Kubient had successfully tested a software program that detects real-time fraud during digital advertising auctions, shortly before Kubient's initial public offering.
This allowed Kubient to make $1.3 million in revenue that it should not have received. Kubient did not allegedly perform the tests.
In a separate complaint, the SEC alleged that Weiss and Coen learned during Kubient's secondary stock offering that the tests were not performed.
Roberts, Weiss and Coen also allegedly lied to Kubient's independent auditor about the revenue or whether they had become aware of any concerns about it. Kubient raised about $33 million in the two stock offerings using offering materials that misrepresented the success of the tests and the revenue.
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