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An investment adviser's operating procedures allow a portfolio manager to value the securities recommended, or override values provided by a custodian, for purposes of reporting to clients and calculating advisory fees without any independent review. A strong control environment would provide for a separation of duties and proper management oversight of pricing overrides.
An investment adviser establishes comprehensive written control procedures, but does not properly monitor its business activities for compliance with these procedures. For example, an adviser's insider trading policy states that access persons may not trade shares issued by companies on a "restricted list," yet the adviser does not review personal securities transactions to ensure that inappropriate transactions did not take place.
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