The SEC remains keenly interested in the valuation practices of private funds, especially with regard to illiquid assets.  See “SEC’s Rozenblit Discusses Operations and Priorities of the Private Funds Unit,” Hedge Fund Law Report, Vol. 8, No. 37 (Sep. 24, 2015).  Valuing illiquid securities is a fraught activity in the best of times because of the inherent conflict of interest such valuations present.  A manager must have in place an appropriate process for valuing illiquid holdings, must disclose that process to investors and, most importantly, must apply that process fairly and consistently.  Managers vary from these processes at their peril.  See, e.g., “SEC Settlement Suggests that Prime Brokers Have Due Diligence and Disclosure Obligations with Respect to Manager-Provided Hedge Fund Valuations,” Hedge Fund Law Report, Vol. 8, No. 28 (Jul. 16, 2015); and “SEC’s Recent Settlement with a Hedge Fund Manager Highlights the Importance of Documented Internal Controls when Managing Conflicts of Interest Associated with Asset Valuation and Cross Trades,” Hedge Fund Law Report, Vol. 7, No. 1 (Jan. 9, 2014).  However, a liquidity crisis – which may be caused by a spate of investor redemptions – can exacerbate the manager’s challenges and threaten the very survival of the fund.  The recent investor suit against Boaz Weinstein’s Saba Capital Management, L.P., is evidence of the potential pitfalls surrounding valuation during periods of stress.  The Public Sector Pension Investment Board (Pension Board) charges that it was shortchanged when the defendants altered the method of valuing certain of the fund’s illiquid holdings midstream, resulting in a significant reduction to the fund’s net asset value – and a correspondingly lower redemption payment to the Pension Board.  This article summarizes the Pension Board’s allegations.  For discussion of another investor suit premised in part on improper valuation practices, see “Brockton Retirement Board Files Class Action Lawsuit Against Oppenheimer Fund of Private Equity Funds and Executive Officers for Allegedly False Claims Relating to Fund Performance and Investment Valuations Contained in Fund Marketing Materials,” Hedge Fund Law Report, Vol. 5, No. 15 (Apr. 12, 2012).