(Article from Registered Funds Regulatory Update, April 2023)
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Bloomberg Finance L.P. recently agreed to settle charges from the SEC that it omitted material information as to how BVAL, Bloomberg’s paid subscription pricing service, calculated valuations for certain fixed income securities. The SEC order found that, from at least 2016 through October 2022, Bloomberg failed to disclose that valuations for certain thinly-traded and hard-to-price fixed income securities could be based on a single data input, such as a broker quote, rather than calculated using previously disclosed proprietary algorithmic methodologies. According to the SEC, Bloomberg knew that BVAL clients, including mutual funds, private funds and other financial services entities, utilized BVAL’s prices to value bonds and securitized products, including for determining NAV calculations and for purposes of computing prices for which shares were offered, sold or redeemed from investors. Although there was no evidence that BVAL’s prices were erroneous or not reflective of market value, the SEC asserted that the fact that Bloomberg delivered valuations contrary to its disclosed methodologies made the statements materially misleading in violation of the Securities Act.
Without admitting or denying the findings, Bloomberg agreed to pay a civil monetary penalty of $5 million and cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act. The SEC noted that Bloomberg took steps to resolve the issue in a timely manner, hired an outside expert and provided additional disclosure to BVAL customers about its pricing calculations, including details regarding its use of single broker quotes.
In the Matter of Bloomberg Finance L.P., SEC Admin. Proc. File No. 3-21284 (Jan. 23, 2023), available at: https://www.sec.gov/litigation/admin/2023/33-11150.pdf.