AXA Rosenberg Investment Management LLC (ARIM), AXA Rosenberg Group LLC (ARG), and Barr Rosenberg Research Center LLC (BRRC) have agreed to pay over $240 million to settle administrative securities fraud charges that they hid an important error in the computer code of the quantitative investment model used for managing client assets. The Securities and Exchange Commission says the error resulted in investor losses worth $217 million. As part of the settlement, the three Axa Rosenberg entities will repay the investors who sustained financial losses, as well as a $25 million penalty.
The SEC says that the institutional money manager’s concealment of “material error in its computer code” from investors was a violation of federal securities laws. The commission also claims that the three entities made material misrepresentations, such as failing to disclose the error or its effect and did not properly represent “the model’s ability to control risks.”
Per the charges, the error, which was discovered by ARG and BRRC senior managers in June 2009, disabled a key risk-management component. Instead of fixing the problem right away, senior management told others not to reveal the error, which they did not remedy at the time.
The SEC says that quantitative investment managers have been known to “isolate their complex computer models from the firm’s compliance and risk management function” in an attempt to protect trade secrets.” The SEC also claims that BRRC failed to implement and adopt compliance procedures and policies to make sure the model would work as intended. Although the error was eventually remedied, ARG’s Global CEO was not notified of it until five months after its discovery.
As of last December, Axa Rosenberg Group LLC said that as “the specialist active global equity investment management firm” managed over $31 billion in assets. ARG is the holding company of investment advisers ARIM, which used the investment model to manage client portfolios, and BRRC, which developed the quantitative investment model’s code.
Related Web Resources:
SEC Charges AXA Rosenberg Entities for Concealing Error in Quantitative Investment Model, SEC, February 3, 2011
Read the corrected SEC order (PDF)
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Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011
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Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011
Contact our stockbroker fraud law firm for a free consultation.
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