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Calvert settles valuation, disclosure issues that are agency priorities in 2017, SEC officials say

Calvert Investment Management agreed to settle charges announced by the Securities and Exchange Commission on Tuesday that it improperly valued a bond holding and did not correctly disclose its remediation efforts.

The improper fair valuation of an illiquid bond issued by Toll Road Investors Partnership II led to an overstated net asset value of some Calvert mutual funds from 2008 to 2011, plus inaccurate performance figures and inflated asset-based fees, according to the SEC order.

After discovering the improper valuation, Calvert sought to remedy it by paying $27 million to the Calvert funds and shareholders, but losses were not properly calculated or disclosed to all shareholders, SEC officials charged, along with a prohibited transaction with affiliated people in another Calvert-advised fund.

Calvert has $11.5 billion in assets under management and provides investment advisory and sustainability research services for the Calvert mutual funds and Calvert institutional clients.

President and CEO John Streur, who joined Calvert in January 2015 and installed a new leadership team, called the mistakes “regrettable.” Mr. Streur said in a statement: “Calvert has taken great steps to strengthen its policies and procedures. Calvert's leadership has worked quickly to further enhance and strengthen the valuation and compliance functions. This experience will ultimately reinforce Calvert's commitment to the highest standard in the investment management industry.” SEC officials recognized Calvert's cooperation. Calvert, which did not admit or deny the findings, will pay a civil penalty of $3.9 million.

Valuation and disclosure will be enforcement priorities in fiscal year 2017, Anthony S. Kelly, co-chief of the enforcement division's asset management unit, told a Washington compliance professionals conference Tuesday. While agency officials are still finalizing their 2017 priorities, “expect cases” on valuation issues, Mr. Kelly said. He added that fees and expenses in private funds will continue to be scrutinized, along with gatekeepers, fund governance and investor disclosure. “What we want to see is transparency,” Mr. Kelly said.

Fiscal 2017 priorities for SEC examiners will include funds used by retirement savers, the Department of Labor fiduciary rule, cybersecurity and how private funds address liquidity risk, Daniel S. Kahl, chief counsel of the office of compliance inspections and examinations told conference attendees.