SEC charges Peterson Sullivan auditors in valuation case

The Securities and Exchange Commission (SEC) has charged Peterson Sullivan auditors Raymon Holmdahl and Kanako Matsumoto for “improper professional conduct” in connection with their roles as external auditors for a hedge fund that inflated investment values in order to attain unearned management fees.

Holmdahl and Matsumoto audited the fiscal year 2013 financial statement for the Summit Stable Value Fund (SSVF) in which Summit Asset Strategies Investment Management intentionally overstated the value of assets by $1.69 million. The overstatement allowed Summit to collect more money in fees, according to the SEC order.

Holmdahl and Matsumoto found the FY 2013 statement in accordance with US GAAP, but failed to comply with “numerous” American Institute of Certified Public Accountants (AICPA) auditing standards, the applicable standards for SSVF, the SEC claimed.

“Holmdahl and Matsumoto did not uncover the fraudulent activity because they failed to properly verify the fund's assets, despite having reason to question [Summit CIO Chris Yoo's] valuations,” said Erin Schneider, associate director for enforcement in the SEC's San Francisco office, in a statement.

The accountants agreed to settle the charges without admitting or denying the findings and have been suspended for three years from practicing as accountants on behalf of any entity regulated by the SEC.

The increased regulatory pressure on auditors, lawyers and service providers has been top-of-mind for the industry of late, as pfm recently noted in a comment letter. For private fund managers, this pressure could mean a rise in service provider prices in order to ensure sufficiently experienced team members and due diligence are being devoted to each client.