Four Transamerica affiliates were ordered by the Securities and Exchange Commission Monday to refund $97 million to misled retail investors over faulty investment models created by an inexperienced junior analyst.
According to the SEC’s order, investors put billions of dollars into mutual funds and variable annuity strategies using the faulty models developed by investment advisor Aegon USA Investment Management LLC, along with its affiliated investment advisors Transamerica Asset Management and Transamerica Financial Advisors, and its affiliated broker-dealer Transamerica Capital Inc., which claimed that investment decisions would be based on AUIM’s quantitative models.
The agency also brought separate charges against AUIM’s former global chief investment officer, Bradley Beman, and AUIM’s former director of new initiatives, Kevin Giles, for causing certain AUIM violations.
Between July 2011 and June 2015, the order states, the affiliates violated the federal securities laws while offering, selling and managing 15 quantitative-model-based mutual funds, variable life insurance investment portfolios, and variable annuity investment portfolios and separately managed account strategies.
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Starting in 2010, “AUIM tasked the analyst — who had recently earned his MBA, but had no experience in portfolio management or any formal training in financial modeling — with developing quantitative models for use in managing investment strategies (i.e., models making investment allocation and models making trading decisions),” according to the order.
“AUIM ultimately used these models to manage each of the products and strategies,” the order states.
The analyst “did not follow any formal process to confirm the accuracy of his work, and AUIM failed to provide him meaningful guidance, training or oversight as he developed the models or to confirm that the models worked as intended before using them to manage client assets.”
The four affiliates marketed all of the products and strategies as “managed using a proprietary quant model,” and highlighted, when marketing certain of the products and strategies, their ‘emotionless,’ ‘model-driven’ or ‘model supported’ investment management process and described how the models were supposed to operate,” the SEC said. “These claims necessarily implied that the models worked as intended.”