(Adds details on bond mispricing)
By Tim McLaughlin
Oct 18 Calvert Investments said on Tuesday it
overstated the value of some of its mutual funds for several
years and agreed to settle a civil case with the U.S. Securities
and Exchange Commission after being accused of mispricing bonds
and collecting inflated fees.
Calvert said it would pay a $3.9 million penalty and
reimburse affected shareholders as part of the settlement.
"The mistakes made in the past are regrettable and Calvert
sincerely apologies for them," Calvert Chief Executive John
Streur said in a statement. "Calvert has taken great steps to
strengthen its policies and procedures."
Bethesda, Maryland-based Calvert, which manages about $12
billion, said it has overhauled its compliance department,
separating that oversight function from the company's legal
department. Calvert began making management changes at the end
of 2014 and has since appointed an entirely new senior
Between March 18, 2008 and Oct. 18, 2011, Calvert misvalued
bonds that caused funds to have the wrong net asset value. As a
result, performance figures were incorrect and Calvert collected
inflated fees, the company said in a statement.
The case against Calvert centered on illiquid, or hard to
price, bonds issued by Toll Road Investors Partnership II LP,
according to the SEC. Calvert funds acquired Toll Road bonds
with a principal amount of $1.2 billion.
Calvert relied heavily on a third-party analytical tool to
value the bonds, but valued some of the securities at a price
that was 65 percent higher than the price assigned to the same
bonds by a major industry participant on the same day, the SEC
Calvert eventually discovered the problem with the
analytical tool and in October 2011 marked down the value of the
2005B series of the Toll Road bonds by more than 50 percent, the
As a result of the inflated bond prices, some investors in
Calvert funds purchased shares at higher prices than they should
have paid, and Calvert collected higher asset-based fees, the
In December 2011, Calvert contributed $27 million to the
Calvert funds affected by the mispricing. But the SEC said the
process used was flawed.
Calvert said it is too early to determine the ultimate
amount paid to affected shareholders as it reprocesses
(Reporting By Tim McLaughlin; Editing by Bill Rigby)