Administration February 3, 2011

SEC Charges AXA Rosenberg Units with Securities Fraud

February 3, 2011 (PLANSPONSOR.com) – The Securities and Exchange Commission (SEC) has charged three AXA Rosenberg entities with securities fraud for concealing a significant error in the computer code of the quantitative investment model used to manage client assets.
Reported by

The SEC said the error caused $217 million in investor losses, according to a news release.

AXA Rosenberg Group LLC (ARG), AXA Rosenberg Investment Management LLC (ARIM), and Barr Rosenberg Research Center LLC (BRRC) have agreed to settle the SEC’s charges by paying $217 million to harmed clients plus a $25 million penalty, and hiring an independent consultant with expertise in quantitative investment techniques who will review disclosures and enhance the role of compliance personnel, the SEC announcement said.

Get more!  Sign up for PLANSPONSOR newsletters.

The SEC’s order instituting administrative proceedings against the firms found that senior management at BRRC and ARG learned in June 2009 of a material error in the model’s code that disabled one of the key components for managing risk. Instead of disclosing and fixing the error immediately, a senior ARG and BRRC official directed others to keep quiet about the error and declined to fix the error at that time, the SEC alleged.

“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, in the news release. “The secretive structure and lack of oversight of quantitative investment models, as this case demonstrates, cannot be used to conceal errors and betray investors.”

The SEC additionally charged BRRC with failing to adopt and implement compliance policies and procedures to ensure that the model would work as intended.

According to the SEC’s order, ARG is the holding company of BRRC and ARIM, which are Orinda, California-based investment advisers registered with the SEC. BRRC developed and maintains the computer code for the quantitative investment model and ARIM uses the model to manage client portfolios.

The SEC’s order further found that ARG, BRRC, and ARIM made material misrepresentations and omissions about the error to ARIM’s clients. The firms failed to disclose the error and its impact on client performance, attributed the model’s underperformance to market volatility rather than the error, and misrepresented the model’s ability to control risks. BRRC did not have reasonable compliance procedures in place to ensure that the model would assess certain risk factors as intended. The coding process for the model represented a serious compliance risk for BRRC and its clients because accurate coding is required for the model to function properly and in the manner represented to clients, the agency said.

Benefits February 3, 2011

VA to Ask Supreme Court for Immediate HCR Challenge Suit Hearing

February 3, 2011 (PLANSPONSOR.com) – Virginia Attorney General Ken Cuccinelli will ask the United States Supreme Court to accept the appeal of the state’s health care reform lawsuit even before it winds its way through federal appellate courts.
Reported by

Cuccinelli said in a news release that the state would rely on a Supreme Court rule of procedure allowing such expedited reviews in cases involving matters of great public importance. The official said the health reform challenge fits into that category because efforts by state officials who are now preparing to implement the law would be rendered moot were the reform act be thrown out.

“Given the uncertainty caused by the divergent rulings of the various district courts on the constitutionality of the Patient Protection and Affordable Care Act, we feel that it is necessary to seek resolution of this issue as quickly as possible,” said Cuccinelli, in the news release.  “Currently, state governments and private businesses are being forced to expend enormous amounts of resources to prepare to implement a law that in the end, may be declared unconstitutional.  Regardless of whether you believe the law is constitutional or not, we should all agree that a prompt resolution of this issue is in everyone’s best interest.”

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Virginia’s HCR challenge is currently pending in the 4th U.S. Circuit Court of Appeals (see Judge Strikes Down HCR Coverage Mandate).

«