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Alternative Market Briefing

Hedge fund adviser Deer Park Road to pay SEC $5m penalty for compliance failures

Wednesday, June 05, 2019

B. G., Opalesque Geneva:

Colorado-based investment adviser Deer Park Road Management Company LP, a private fund manager in the mortgage-backed securities space, has agreed to pay a $5m penalty for compliance failures related to the valuation of fund assets, reported the Securities and Exchange Commission (SEC) on Tuesday. The manager's chief investment officer (CIO) agreed to pay a $250,000 penalty.

Deer Park Road's STS Partners fund has been ranked as one of the most consistent performing hedge funds in the country. But, according to an SEC investigation, it failed to have policies and procedures to address the risk that its traders were undervaluing securities and selling for a profit when needed.

The firm also failed to guard against its traders' providing inaccurate information to a pricing vendor and then using the prices it got back to value bonds. CIO Scott Burg oversaw the valuation of certain assets in the flagship fund and approved valuations that the traders flagged as "undervalued" with notations to "mark up gradually."

Also overseeing valuation was a committee comprised of the principal's relatives and others without relevant expertise.

Without admitting or denying the findings in the SEC's order, Deer Park consented to a censure. Furthermore, Deer Park and Burg agreed to cease and desist from committing or causing any violations and future violat......................

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