SEC Settles Charges with Security Valuation Provider for Providing Misleading Disclosures About Its Valuation Methodologies

Who may be interested: Registered Investment Companies; Investment Advisers; and Directors of Registered Funds.

Quick Take: The SEC settled charges with a valuation service provider in relation to the provider’s failure to disclose to its customers that its valuation methodologies could allow for valuations of certain fixed-income securities to be based on a single quote for a security. That practice contravened its stated valuation methodologies. 

The SEC announced it had settled charges with Bloomberg Finance L.P. (Bloomberg) relating to Bloomberg’s materially misleading disclosures with respect to its BVAL service. BVAL is Bloomberg’s paid subscription service that provides daily price valuations for hard-to-price and thinly-traded fixed-income securities. BVAL is widely used by investment advisers, broker-dealers, registered investment companies, accounting firms and other market participants.

The SEC found that from at least 2016 to October 2022 Bloomberg failed to inform BVAL users that valuations provided for some fixed-income securities could be based on a single data input, such as a quote from a single broker. The order noted that these uncorroborated valuations conflicted with the valuation methodology Bloomberg described to BVAL customers. As a result, the order noted that BVAL customers were unable to determine whether valuations provided through BVAL had been generated in accordance with the disclosed valuation methodologies.

The SEC further alleged that because Bloomberg was aware that customers used the BVAL valuations in connection with activities involving the offer and sale of securities (fund asset pricing, determining net asset value, etc.), Bloomberg violated Section 17(a)(2) of the Securities Act, which prohibits the making of untrue statements of material facts or omissions of material facts in connection with an offer or sale of securities. Without admitting or denying the findings, Bloomberg agreed to cease and desist from future violations of Section 17(a)(2) and to pay a civil penalty of $5 million. The order noted that Bloomberg voluntarily engaged in remedial efforts to improve its BVAL service and expand its disclosures of BVAL’s valuation methodologies, including reliance on single broker quotes.

The SEC's order may be found here.