Money Manager’s Fraud Charge Compounded by Failure to Timely Disclose Fraudulent Acts

September 22, 2011

The SEC charged Barr M. Rosenberg, the co-founder of institutional money manager AXA Rosenberg, with fraud. The SEC alleges that the Rosenberg created the quantitative investment model used by AXA Rosenberg’s affiliated investment advisers for use in managing client assets, oversaw research projects to improve and enhance that model, and exercised significant authority throughout the AXA Rosenberg organization. In June 2009, Rosenberg learned of a significant error in the computer code of the quantitative investment model that disabled one of the model’s key components for managing risk and affected the model’s ability to perform as expected. Clients raised concerns about this underperformance, and Rosenberg knew about and discussed these concerns with others at AXA Rosenberg. But instead of disclosing and correcting the error immediately, Rosenberg directed others to conceal the error and declined to fix the error.  According to the SEC, Rosenberg’s efforts to contain knowledge of the error continued through early October 2009, when he denied the existence of any significant errors in the model during a board meeting discussion about the model’s performance. Knowledge of the error was kept from AXA Rosenberg’s Global CEO until November 2009 and was disclosed to clients in April 2010.

The SEC further alleges that due to Rosenberg’s misconduct, AXA Rosenberg and its affiliated investment advisers misrepresented to clients that the model’s underperformance was attributable to factors other than the error, and inaccurately stated that the model was controlling risk correctly. Rosenberg’s instructions to delay fixing the error caused additional client losses.

Please click here to access the administrative order.


Categories

Enforcement Actions, Investment Advisers