The SEC recently settled an enforcement action against an investment adviser and two of its principals, who allegedly engaged in a scheme to improperly inflate the value of certain illiquid securities held by the funds they managed. The respondents allegedly spoon-fed securities valuations to two broker-dealer representatives who then provided those valuations to the funds’ auditor and administrator, both of which believed that the representatives were providing independent price determinations. The fraudulent valuations allowed the respondents to collect inflated management and performance fees from those funds. Without admitting or denying the SEC’s charges, the investment adviser and its principals have agreed to a settlement order with the SEC. In a parallel proceeding, also without admitting or denying the SEC’s allegations, one of the broker-dealer representatives has agreed to entry of a similar settlement order. This article summarizes the alleged fraudulent valuation scheme and the other facts on which the SEC enforcement actions were based, the SEC’s specific charges and the terms of the settlement orders. In addition to emphasizing the SEC’s continuing interest in valuation, the settlements indicate certain due diligence and disclosure obligations prime brokers have with respect to manager-provided hedge fund valuations. See “K&L Gates Partners Outline Six Compliance Requirements and Four Enforcement Themes for Private Fund Advisers (Part Three of Three),” Hedge Fund Law Report, Vol. 8, No. 1 (Jan. 8, 2015). For coverage of other recent SEC actions involving improper valuation, see “SEC Fraud Charges Against Lynn Tilton, So-Called ‘Diva of Distressed,’ Confirm the Agency’s Focus on Valuation and Conflicts of Interest,” Hedge Fund Law Report, Vol. 8, No. 14 (Apr. 9, 2015); “GLG Partners Settlement Illustrates SEC Views Regarding Valuation Controls at Hedge Fund Managers,” Hedge Fund Law Report, Vol. 7, No. 2 (Jan. 16, 2014); “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); and “SEC Charges Hedge Fund Manager with Manipulating the Value of Fund Holdings, Paying Excessive Fees to an Interested Brokerage Firm and Making Misrepresentations to Investors,” Hedge Fund Law Report, Vol. 6, No. 16 (Apr. 18, 2013).