[Week 20 of 2026] Cops, Conduits, and Charades

Welcome back to Price and Prejudice with a few musings from Week 20 of 2026.

Banks as Cops

Given their size and influence on the financial sector, banks serve a variety of roles besides their original goal of profit maximizing. This piece is ostensibly about a bank fraud charge against a non-profit, but it also shows you how banks and the broader U.S. financial system has been deputized as an arm of law enforcement. For example, banks regularly file "suspicious activity reports" into a database that prosecutors monitor closely, and compliance departments house one of of the most intense and tech savvy employees at these firms.

The article discusses the indictment of the Southern Poverty Law Center (SPLC), a well-known civil rights non-profit, for opening a series of bank accounts in the names of entities that did not actually operate as businesses. What's interesting here is that the DOJ does not need to prove what the SPLC did with the money, or what its motives were. Instead, lying to a bank is itself a federal crime, with no requirement to show intent or materiality. The same template has produced convictions against Sam Bankman-Fried and George Santos: when prosecutors cannot prove the underlying conduct, they convict on the lie to the bank.

This fact is pretty surprising given the reality where we rely so heavily on day-to-day transactions through the financial system. Whether we find it comforting or alarming, the operational reality is that the system maintains a contemporaneous record of who pays whom, and that record is overwhelmingly available to any sufficiently motivated investigator.

The Trust Trick

This Bloomberg piece reports that Collective Investment Trusts (CITs) now hold roughly 40% of 401(k) assets in plans with more than 100 participants, up from 12% in 2010, with industry estimates somewhere between $6-7 trillion in total. Essentially, CITs hold the same assets as comparable mutual funds, but they are regulated by the OCC or state banking departments rather than the SEC. This means no prospectus, no published daily NAV, and no independent board, which could be concerning for regulators.

The more interesting question is what the wrapper enables next. Mutual funds face strict limits on illiquid holdings under the Investment Company Act, with about 15% being the working ceiling. CITs face no such constraint, which is precisely why BlackRock, Goldman, and the major alternative asset managers have converged on them as the vehicle for piping private assets into defined contribution plans. CITs are a key part of the plumbing that enables this integration, and perhaps it's useful to know whether the lack of disclosure in CITs is an issue or not in the current equilibrium with minimal private asset exposure.

Marks and Mirages

This note from PIMCO makes a point that should be obvious but somehow is not: daily pricing in private credit is not the same as daily price discovery. The reason is that while daily pricing may create the perception of liquidity, it often just increases the frequency of potentially inaccurate, model-driven valuations without anchoring them to actual market transactions.

The empirical detail from the article worth dwelling on is the shape of the dispersion across BDCs that hold the same loan. By year-end 2025, marks for the same instrument were on average about 5 points apart. About 83% of loans held by multiple BDCs are priced within a 2-point range, but the remaining 17% is skewed upside i.e. when managers disagree, they tend to disagree by marking up rather than down. That is the exact asymmetry one would predict under an agency problem where management fees and reported returns are levied on the high mark.

PIMCO's broader point seems to be that what's being marketed as liquid private credit is better understood as illiquid credit with a higher-frequency model output. This becomes more than an accounting curiosity in evergreen vehicles that offer periodic subscriptions and redemptions at NAV. If marks are stale or dispersed, early redeemers transact at a price that does not reflect fundamental value, and the difference is borne by whoever stays. And it seems unlikely that gates and notice periods can solve this fundamental issue.