AXA units to pay $240 million for trading model glitch
WASHINGTON (Reuters) -Global equity investment firm AXA Rosenberg has agreed to pay more than $240 million to settle accusations by the U.S. Securities and Exchange Commission that it concealed a major computer glitch that cost investors millions of dollars.
The SEC said on Thursday that the error in a quantitative investment model by AXA Rosenberg Group LLC, AXA Rosenberg Investment Management LLC and Barr Rosenberg Research Center LLC caused investors to lose $217 million. All three are part of parent company AXA Group, Europe's second-biggest insurer.
The AXA Rosenberg entities agreed to pay back the $217 million in losses plus a $25 million penalty.
Additionally, the SEC said they must hire an independent consultant to review disclosures and improve reporting processes for the quantitative investment model.
The AXA entities agreed to the settlement without admitting or denying the allegations.
The SEC said its investigation is continuing. People familiar with the matter said the ongoing probe relates to individuals at the various firms.
AXA Rosenberg apologized for the error in a statement, saying it had cost the firm a large amount of business since it announced the SEC probe in April last year.
As of December 2010, AXA Rosenberg said it managed more than $30 billion in assets, compared with $70 billion as of December 2009. The company also said it has taken steps to improve its investment platform and boost its internal risk controls.
"We deeply regret that the coding error adversely impacted many of our clients," Dominique Carrel-Billiard, chairman of the board of AXA Rosenberg, said in a statement. "The exhaustive review that we undertook of this matter reflects our commitment to regaining our client's confidence and restoring trust."
The SEC said that senior management at Barr Rosenberg Research Center and AXA Rosenberg knew about an error in the model's code in June 2009. The error apparently disabled a key component the helped mitigate risk. But instead of disclosing it, the SEC said officials directed other employees to keep it under wraps.
The SEC said the error was introduced into the model in April 2007, but was eventually fixed for all portfolios. However, the error was not reported to AXA Rosenberg's global CEO until November 2009. AXA Rosenberg conducted its own investigation and disclosed it to SEC examination staff in March 2010.
(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)
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