On December 12, 2013, the SEC issued an order instituting settled administrative proceedings against publicly-traded investment firm GLG Partners, Inc. (GPI) and its investment adviser subsidiary GLG Partners, L.P. (GLG). The SEC charged GLG with violating various provisions of the Securities Exchange Act of 1934 (Exchange Act) because, among other things, it allegedly had deficient internal controls relating to valuation of assets. The settlement (which arose out of the SEC’s aberrational performance inquiry
) is explicitly relevant to investment managers required to report under the Exchange Act, and implicitly relevant to other investment managers (whether or not they report under the Exchange Act) as an illustration of the SEC’s views regarding internal controls around valuation. For a discussion of related recent enforcement activity, see “SEC’s Recent Settlement with a Hedge Fund Manager Highlights the Importance of Documented Internal Controls when Managing Conflicts of Interest Associated with Asset Valuation and Cross Trades
,” Hedge Fund Law Report, Vol. 7, No. 1 (Jan. 9, 2014). This article summarizes the SEC’s factual and legal allegations levied against GPI and GLG (including a discussion of the deficiencies in the firm’s valuation policies and procedures), as well as the sanctions levied against GPI and GLG. The article also briefly outlines the potential ramifications of the settlement for hedge fund managers. For a discussion of valuation best practices, see “DLA Piper Hedge Fund Valuation Webinar Covers Fair Value Methodologies, Valuation Services, Valuing Illiquid Positions and Handling Valuation Inquiries During SEC Examinations
,” Hedge Fund Law Report, Vol. 6, No. 31 (Aug. 7, 2013); and “WilmerHale and Deloitte Identify Best Legal and Accounting Practices for Hedge Fund Valuation, Fees and Expenses
,” Hedge Fund Law Report, Vol. 6, No. 28 (Jul. 18, 2013).