billy d
Baruch MFE, Class '11
- Joined
- 2/2/10
- Messages
- 28
- Points
- 18
A quantitative investment firm agreed to pay $242m to settle allegations that it hid from clients an error in its computer model that caused them millions of dollars in losses.
Axa Rosenberg Group, which managed $30bn at the end of last year, and related entities agreed to settle the allegations brought by the Securities and Exchange Commission by returning $217m to harmed investors and paying a $25m penalty.
“This is a wake-up call to all ‘quant’ managers,” said Bruce Karpati, co-head of the SEC’s asset management enforcement unit.
“They can’t rely on their secretive structures and complex computer models to keep material information from investors.”
The SEC’s investigation is continuing. Axa Rosenberg neither admitted nor denied wrongdoing.
According to the administrative complaint, senior managers learnt in June 2009 about an error in the computer model’s code that disabled a “key component for measuring risk”. Rather than fix the error immediately, senior managers told others to keep quiet and let the error remain in the model unfixed, the SEC alleged.
The error was introduced in the system in 2007 but the company’s chief executive only learnt of the problem in November 2009.
The company conducted an internal investigation and reported the matter to the SEC in March 2010 after learning that the agency’s examinations staff intended to review the firm. The firm told its clients about the error on April 15.
“We deeply regret that the coding error adversely impacted many of our clients,” said Dominique Carrel-Billiard, chairman of Axa Rosenberg. The SEC said 608 of the firm’s 1,421 clients were affected.
According to the SEC, the Axa entities failed to tell clients about the error and its impact on their returns. Instead, the SEC alleged that they attributed the fund’s underperformance on market volatility. The executives also misrepresented to investors the model’s ability to control risks, the SEC alleged.
Axa’s strategy consisted of a three-part system fueled by computer codes to evaluate companies based on their earnings and valuation and industry and stock specific risks. The third component balances the two risks to select a portfolio, the SEC said. Only a small group of Axa executives had access to the model and the code, the SEC said, without compliance oversight.
To read the full article follow the link:
FT.com / Companies / Financial Services - ‘Quant’ firm pays $242m to settle error allegations
Axa Rosenberg Group, which managed $30bn at the end of last year, and related entities agreed to settle the allegations brought by the Securities and Exchange Commission by returning $217m to harmed investors and paying a $25m penalty.
“This is a wake-up call to all ‘quant’ managers,” said Bruce Karpati, co-head of the SEC’s asset management enforcement unit.
“They can’t rely on their secretive structures and complex computer models to keep material information from investors.”
The SEC’s investigation is continuing. Axa Rosenberg neither admitted nor denied wrongdoing.
According to the administrative complaint, senior managers learnt in June 2009 about an error in the computer model’s code that disabled a “key component for measuring risk”. Rather than fix the error immediately, senior managers told others to keep quiet and let the error remain in the model unfixed, the SEC alleged.
The error was introduced in the system in 2007 but the company’s chief executive only learnt of the problem in November 2009.
The company conducted an internal investigation and reported the matter to the SEC in March 2010 after learning that the agency’s examinations staff intended to review the firm. The firm told its clients about the error on April 15.
“We deeply regret that the coding error adversely impacted many of our clients,” said Dominique Carrel-Billiard, chairman of Axa Rosenberg. The SEC said 608 of the firm’s 1,421 clients were affected.
According to the SEC, the Axa entities failed to tell clients about the error and its impact on their returns. Instead, the SEC alleged that they attributed the fund’s underperformance on market volatility. The executives also misrepresented to investors the model’s ability to control risks, the SEC alleged.
Axa’s strategy consisted of a three-part system fueled by computer codes to evaluate companies based on their earnings and valuation and industry and stock specific risks. The third component balances the two risks to select a portfolio, the SEC said. Only a small group of Axa executives had access to the model and the code, the SEC said, without compliance oversight.
To read the full article follow the link:
FT.com / Companies / Financial Services - ‘Quant’ firm pays $242m to settle error allegations
