Four Transamerica entities have settled US Securities and Exchange Charges accusing them of misconduct involving investment models that were faulty. Collectively, the entities, AEGON USA Investment Management LLC (AUIM), its affiliated brokerage firm Transamerica Capital Inc., as well as its affiliated investment advisers Transamerica Financial Advisors Inc. and Transamerica Asset Management Inc., will pay $97M to retail investors that were impacted. However, the entities are not denying or admitting to the regulator’s findings.
The SEC’s order contends that investors placed billions of dollars into mutual funds and strategies that employed flawed investment models that AUIM developed without knowing they had errors. AUIM’s affiliated investment advisers and broker-dealer touted the quantitative models upon which their investment decisions would be made. Between July ’11 and June ’15, they purportedly offered, sold, and oversaw 15 mutual funds, variable annuity investment portfolios, variable life insurance investment portfolios, mutual funds, and separately management account strategies that were based on these quantitative models.
Unfortunately, contends the SEC’s order, the models were created by one junior analyst who was inexperienced. Not only that, but there were a number of errors in the models, which failed to operate as promised. Moreover, said the regulator, the Transamerica entities launched the Strategies and Products without first verifying that the models worked as they were meant to and without disclosing any risks identified with the models.
The regulator said that when AUIM and Trans America Asset Management discovered the mistakes in 2013, they didn’t tell investors about them. They did, however stop using the investment models—some without disclosing that the models were no longer in use.
Addressing the flawed quantitative investment models, SEC Enforcement Division Asset Management United Co-Chief Dabney O’Riordan said that not only were investors misled about the models employed to manage their investments but that this exposed them to “significant hidden risks” and denied them the ability to be “informed” when making investment choices.
$97M Will Go To Retail Investors
As part of the SEC settlement, the Transamerica entities will pay almost $53.5M in disgorgement, $8M in interest, plus a $36.3M penalty. A fair fund will be set up so that all of the money will go to investors that were affected.
Meantime, the SEC also filed orders accusing AUIM’s ex-Global Chief Investment Officer Bradley Berman and ex-New Initiatives Director Kevin Giles of playing a part in causing the Transamerica entities’ violations. For example, Berman purportedly knew of the risks involved for investment models that didn’t work as they were meant to, and he allegedly did not take the steps necessary to inform them that the models were accurate. He and Giles are accused of playing a part in the firm’s compliance failures related to the model’s development and use.
Both have settled the regulators’ charges even though they are not denying or admitting to the findings. Giles will pay $25K in penalties and Berman will pay $65K. The money will also go to investors.
Investor Fraud Lawyers
If you are someone who invested through any of these Transamerica entities and may have been impacted by one of their flawed investment models, you may have grounds for financial recovery. Our investor lawyers at Shepherd Smith Edwards and Kantas, LTD LLP represent investors throughout the US. Contact our investment fraud law firm today.
The SEC Order in the Transamerica Case (PDF)
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