The SEC recently charged a private credit adviser for misleading representations during affiliated loan transfers, alleging negligent violations of anti-fraud provisions under the Advisers Act. The adviser had not reassessed loan values amid significant market stress, and settled with a $900,000 penalty. Despite reimbursing the affected fund over $5 million and improving disclosures, enforcement proceeded.

Key Takeaways for Advisers:

• Valuation Methods Must Reflect Market Conditions: Advisers should ensure methodologies consider current markets, not just historical pricing.
• Support Representations with Documentation: Valuation and arm’s-length certifications need robust analytical backing.
• Examination Findings Can Trigger Enforcement: Practices around valuation, conflicts, and principal transactions remain regulatory priorities.
• Private Credit Valuation Is Under Scrutiny: Internal asset transfers may receive heightened attention from regulators.

To help you make sense of what this means for you and your clients, read the full article from our friends at SEC³ here.