The U.S. Securities and Exchange Commission has settled a civil injunctive action in U.S. District Court for the Southern District of New York alleging securities fraud against a former portfolio manager.

It alleged that a portfolio manager violated the federal securities laws when she fraudulently overstated to her employer, Allied Irish Banks plc, the value of its collateralized mortgage obligation portfolio.

The case was settled with the portfolio manager neither admitting nor denying the allegations in the commission’s complaint. She was ordered to pay a US$15,000 ($17,320) civil penalty.

The commission’s complaint alleges that from at least April 2001 to October 2001, the portfolio manager, with help from two sales reps from registered brokerage firms, inflated the internally recorded value of the portfolio. At the end of each month, Allied Irish sought independent valuations of the securities in its CMO portfolio. In connection with that process, and before the valuations were reported back to Allied Irish, she would instruct the salesmen to provide inflated prices for each security.

Ultimately, when the discrepancy between the actual and recorded value of the portfolio came to light, Allied Irish liquidated the portfolio at a substantial loss, ceased investing in CMOs, and terminated her employment.