SDNY Signals Increased Scrutiny of Private Market Valuations

In remarks delivered at the Bloomberg Global Credit Forum on June 3, 2026, Jay Clayton, the U.S. Attorney for the Southern District of New York (“SDNY”), signaled increased scrutiny of private-market valuations. While emphasizing the importance of private credit to the U.S. economy, Clayton identified inconsistent asset valuations as a key area of concern and called for greater transparency around firms’ valuation practices. He specifically noted that significant discrepancies in the valuation of the same assets may raise concerns, particularly where valuations affect fee generation.

Clayton further stated that he has directed SDNY prosecutors to examine valuation discrepancies and outlier marks when assessing investigations. This focus may represent a shift from the private-credit cases currently pursued by SDNY, which have largely centered on borrower-side fraud, and suggests increased attention on the conduct of lenders, asset managers, and investors.

Increased Focus on Asset Valuations

Clayton’s remarks build on comments he made in November 2025, when he identified private-market valuations as an area of interest for both the Department of Justice and financial regulators. He cautioned that, as an increasing share of assets migrates to private-equity and private-credit markets, valuation issues may become more significant, particularly in markets that lack the price transparency and discipline of active public trading.

Because private credit and other private-market assets often lack readily observable market prices, valuations frequently depend on models, assumptions, and third-party inputs. Clayton’s comments suggest that prosecutors may increasingly examine whether firms’ valuation processes reasonably support the marks assigned to assets, especially where those marks affect fees, compensation, fundraising, borrowing capacity, or other economic interests.

During the June 3 forum, Clayton was asked about the challenges of bringing valuation-related cases. In response, he pointed to several pending SDNY cases that combine traditional fraud allegations with valuation-related issues. Although those matters principally concern borrower conduct, they reflect SDNY’s broader interest in the reliability of information in private markets and the integrity of valuation-related disclosures. Clayton nevertheless acknowledged the difficulty of distinguishing between poor judgment and criminal intent in valuation matters.

Taken together, Clayton’s comments suggest that SDNY is increasingly focused on the integrity of valuation practices in private markets and may view unsupported or conflicted valuation decisions as a potential enforcement priority.

Potential Enforcement Theories

The distinction between poor judgment and criminal intent in valuation-related matters is likely to remain central to any future prosecutions. Valuation determinations are inherently judgmental, particularly in illiquid markets where reasonable professionals may reach different conclusions based on the same information. Accordingly, prosecutors are unlikely to focus solely on whether a valuation later proves inaccurate.

Instead, the government is more likely to focus on evidence that valuations were “knowingly” unsupported, manipulated, or used to mislead investors, lenders, auditors, or other market participants. Potential theories could include allegations that firms ignored material contrary information, selectively applied valuation methodologies, concealed adverse developments affecting portfolio companies, or knowingly overstated asset values in investor communications, financial statements, fundraising materials, or fee calculations.

As in other fraud investigations, prosecutors would likely seek evidence of intentional misrepresentations, material omissions, falsified records, or other conduct demonstrating an intent to deceive. Internal communications, valuation committee materials, audit interactions, and contemporaneous documentation supporting valuation judgments could therefore become important evidence in any future investigation.

Considerations for Private Credit Firms

Private credit firms should consider whether their valuation frameworks are supported by appropriate governance, controls, and documentation.  In particular, firms may wish to review whether valuation methodologies are consistently applied, adequately documented, and supported by contemporaneous analysis. Special attention may be warranted where a firm’s valuation materially differs from valuations assigned by co-lenders, co-investors, auditors, valuation agents, or other market participants.

Firms should also evaluate the effectiveness of their valuation governance structures, including the independence of valuation decision-making, the role of valuation committees, and oversight of third-party valuation providers. Any departures from third-party valuations, internal models, or market consensus should be appropriately reviewed and documented.

In addition, firms should consider whether reported valuations are consistent with other information concerning portfolio performance and credit quality, including borrower financial results, covenant compliance, restructuring discussions, internal risk assessments, and other indicators of potential deterioration. Regulators and prosecutors could compare information provided across investor reports, board materials, lender communications, audit processes, and other channels when evaluating whether valuation judgments were appropriately supported.

Particular attention may be directed toward illiquid or distressed assets, including assets involved in restructurings, amend-and-extend transactions, or payment-in-kind arrangements, where valuations often depend heavily on management judgment. Similarly, significant differences in valuations among participants in the same credit facility may draw scrutiny where those participants have access to substantially similar information.

Finally, firms should consider whether their controls adequately address potential conflicts of interest arising from valuations that affect management fees, incentive compensation, fundraising efforts, or other economic interests. Maintaining a clear record demonstrating that valuation decisions were made in good faith and supported by reasonable analysis may become increasingly important in the current enforcement environment.

Conclusion

Although valuation disagreements alone are unlikely to give rise to criminal liability, SDNY’s focus suggests that prosecutors may increasingly examine the processes, controls, documentation, and incentives underlying valuation decisions. As private credit continues to grow and valuations play an increasingly important role in investor reporting, fee calculations, and fundraising, firms should expect heightened scrutiny of both the marks assigned to assets and the procedures used to support them.

Law Clerk Micah D. Stewart and Summer Associate Stephen H. Davis also contributed to this article.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.