The Securities and Exchange Commission has charged Barr Rosenberg, a leading academic and quant fund manager, with fraud. Without admitting or denying guilt, Rosenberg has agreed to a consent decree that requires him to pay a $2.5 million fine and bars him from the securities and investment advisor industries.
The 68-year-old Rosenberg owned 21 percent of AXA Rosenberg (ARG) during what the SEC describes as the relevant time when the alleged fraud was committed. He was also the owner of the Barr Rosenberg Research Center (BRRC).
The agency alleges that in late June 2009 a BRRC employee discovered an error in the code of a complex automated optimization model that caused $217 million in losses in about 600 client portfolios. After the employee discussed his finding with Rosenberg and other employees, the SEC claims Rosenberg directed them to keep quiet about the error and not to inform anyone else about it.
Rosenberg also directed that the error not be corrected at the time. “Before and after the discovery, [the firm’s] clients were expressing dissatisfaction with their portfolio’s underperformance,” the SEC said in its complaint.
As a result of Rosenberg’s directives, the SEC contends that ARG’s global CEO did not learn of the errors as soon as he should have and instead found out about them in November 2009.
It is a hard fall for Rosenberg, a supremely wealthy man and widely respected academic, who pioneered the use of quantitative techniques to implement investment strategies for decades.
Clients reportedly were not informed of the error until 2010. In mid-to-late 2009, ARG's board met to discuss the model and its underperformance.The SEC said Rosenberg failed to disclose the error to the board.
When a director inquired about its underperformance, the SEC claims Rosenberg responded that he was "not aware of siginificant" mistakes and added that "if there are any [they] will not be made in the future." ARG's CEO remained in the dark until November 2009 when a BRRC employee felt required to inform him.
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