US - AXA Rosenberg Group, AXA Rosenberg Investment Management (ARIM) and the Barr Rosenberg Research Center (BRRC) have agreed to pay a total of $242m to settle SEC charges after concealing a coding error from investors.
The Securities and Exchange Commission said yesterday the firms would pay charges of $217m to clients and a $25m penalty. The SEC said in a statement yesterday senior management at ARIM and BRRC learned of the coding error in June 2009, but told others to "keep quiet about the error and declined to fix the error at the time".
AXA failed to reveal its error to clients until the following April when it also announced AXA Rosenberg chairman Barr Rosenberg would take a leave of absence and director of the firm's research centre Thomas Mead would resign. Rosenberg eventually stepped down from the board. (Global Pensions: 10 June 2010)
The revelation of the coding error led to an outflow of client money, including $400m from the Florida State Board of Investments. (Global Pensions: 29 April 2010)
According to data from eVestment Alliance, the firm's assets have dwindled from $70bn at year-end 2009, to $31bn at year-end 2010.
The SEC said there needed to be more transparency among quantitative models.
"To protect trade secrets, quantitative investment managers often isolate their complex computer models from the firm's compliance and risk management functions and leave oversight to a few sophisticated programmers," said Robert Khuzami, director of the SEC's division of enforcement. "The secretive structure and lack of oversight of quantitative investment models, as this case demonstrates, cannot be used to conceal errors and betray investors."
Meanwhile, in a statement announcing the SEC settlement, AXA said it completed its own internal review of the coding error situation.
AXA Rosenberg chairman Dominique Carrel-Billiard said: "We deeply regret that the coding error adversely impacted many of our clients. The exhaustive review that we undertook of this matter reflects our commitment to regaining our client's confidence and restoring trust."
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