How can funds intentionally overvalue securities?

(while using a respected accounting firm and a high quality independent pricing vendor)

Under Generally Accepted Accounting Principles (GAAP) rule ASC 820-10-35-54K, broker quotes are an acceptable source of security pricing and they should be. However, GAAP does not just allow quotes from established investment banks. Under GAAP, any broker quote (including Nigerian Broker Quotes) is an acceptable source of pricing provided that the asset manager states the quote is accurate.

With over 700,000 brokers registered with the SEC, it is easy to obtain non-binding broker quotes at any desired price. The practice is called a “U Turn Quote” and it has been used to inflate security prices by as much as 1,600%. A U Turn Quote exists when a broker supplies a non-binding quote only for valuation purposes at a price requested by the asset manager. As the use of broker quotes is expressly permitted under GAAP ASC 820-10-35-54K and the asset manager is responsible for their accuracy, U Turn Quote have been used to allegedly conduct valuation fraud in funds that used respected accounting firms and high quality independent pricing vendors. The independent vendors prices were simply not used.