SEC Takes Action Against Broker-Dealer Implicated in Premium Point Valuation Scheme

In May 2018, the SEC filed a civil enforcement action against Premium Point Investments L.P. (PPI) and three of its principals, accusing them of fraudulently mismarking certain mortgage-backed securities to boost the performance of their flagging hedge funds. The repercussions of PPI’s alleged fraud continue to be felt. The SEC recently settled enforcement proceedings against a broker-dealer and its CEO for allegedly failing to supervise an associate who provided inflated marks to PPI, and this article examines the terms of the settlement orders. See our three-part series on the duty to supervise: “Recent SEC Enforcement Actions Claim Violations by Broker-Dealers and Investment Advisers” (Sep. 6, 2018); “Conducting Proper Trade and Electronic Communications Surveillance” (Sep. 13, 2018); and “Responding to Red Flags; Implementing Reasonable Policies and Procedures; and Conducting Adequate Training” (Sep. 20, 2018). The SEC Office of Compliance Inspections and Examinations has also been focusing on oversight by investment advisers, which must likewise supervise employees with a view to preventing violations of the federal securities laws. See “OCIE Issues Risk Alert on Advisers’ Oversight of Employees With a History of Disciplinary Events” (Aug. 29, 2019).

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