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Fund Administrator Liable for Miscalculating Fund NAV

The SEC fined and censured a fund administrator for causing a money market fund’s violations of the Investment Company Act.  The SEC asserts that the administrator used a flawed valuation methodology that resulted in violations of Rule 2a-7.  The fund was used as a vehicle to invest securities lending collateral for the benefit of affiliated mutual funds.  Because the fund failed Rule 2a-7, the investments by the registered funds violated the affiliated transaction rules.

OUR TAKE: As was the case with another recent case against a fund administrator, the SEC will broadly interpret the securities laws to hold non-registrant service providers accountable as gatekeepers of the securities markets.