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UPDATE 3-AXA quant manager accepts ban, ends SEC fraud case
September 22, 2011 / 4:06 PM / 6 years ago

UPDATE 3-AXA quant manager accepts ban, ends SEC fraud case

* Barr Rosenberg gets $2.5 mln fine, lifetime industry ban

* SEC: Rosenberg hid coding glitch related to risk control

* AXA Rosenberg paid $242 mln in related SEC settlement

* Rosenberg did not intent to harm clients -- lawyer (Adds comment from Rosenberg’s lawyer)

By Jonathan Stempel

Sept 22 (Reuters) - Barr Rosenberg, one of the earliest proponents of quantitative investing, agreed to a $2.5 million civil fine and lifetime ban from the securities industry to settle U.S. Securities and Exchange Commission fraud charges.

The settlement announced on Thursday resolves allegations that Rosenberg, co-founder of money manager AXA Rosenberg Group LLC, concealed an error in computer code used to manage client assets, misleading clients and causing them losses.

AXA Rosenberg, a unit of French insurer AXA SA (AXAF.PA), agreed in February to pay $217 million to cover the losses and pay a $25 million fine to settle related SEC civil charges. [ID:nN0366011]

“Rosenberg chose concealment over candor, and in doing so selfishly served his interests over those of his clients,” Robert Khuzami, director of the SEC’s enforcement division, said in a statement.

Neither AXA Rosenberg nor Rosenberg admitted wrongdoing. Rosenberg, 68, lives in Sea Ranch, California, the SEC said.

“Dr. Rosenberg is distressed by the events that occurred at AXA Rosenberg,” his lawyer, Jonathan Bass, said in an interview. “He never acted with any intention to cause harm to AXA Rosenberg clients or to gain any advantage or benefit for himself. He is relieved that the matter is now concluded.”

Quantitative investors use computer-driven trading models to help them quickly recognize market changes so they can buy and sell securities before prices reflect those changes.

According to the SEC, the coding error was introduced in 2007 and was “material” to investors because it effectively eliminated from AXA Rosenberg’s quantitative investment model a key component to control risk.

The SEC said Rosenberg learned of the error when it was discovered in June 2009, but directed others to keep quiet and not to fix it.

It said the error was not fixed until November 2009, and was not disclosed to clients until April 15, 2010, two weeks after AXA Rosenberg disclosed the error to SEC staff upon learning it was the subject of an examination by the agency.

“This case is really about individual accountability,” Bruce Karpati, co-chief of the SEC enforcement division’s asset management unit, said in an interview. “This is a strong settlement with respect to the leader of a quantitative fund who was responsible for concealing an error.”

Some of AXA Rosenberg’s mutual fund clients, including Vanguard Group, withdrew business after the coding error was revealed. The group managed $29 billion of assets in June 2011, down from about $70 billion at the end of 2009. (Reporting by Jonathan Stempel in New York; Editing by Tim Dobbyn, John Wallace and Lisa Von Ahn)

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