The Securities and Exchange Commission announced charges against four entities for misconduct involving faulty investment models and ordered the entities to refund $97 million to misled retail investors. According to the SEC’s order, investors put billions of dollars into mutual funds and strategies using the faulty models developed by investment adviser AEGON USA Investment Management (AUIM). Without admitting or denying the SEC’s findings, the four Transamerica entities agreed to settle the SEC’s charges and pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire $97.6 million to affected investors.
AUIM, its affiliated investment advisers Transamerica Asset Management (TAM) and Transamerica Financial Advisors, and its affiliated broker-dealer Transamerica Capital, claimed that investment decisions would be based on AUIM’s quantitative models. The SEC’s order finds that the models, which were developed solely by an inexperienced, junior AUIM analyst, contained numerous errors, and did not work as promised. The SEC found that when AUIM and TAM learned about the errors, they stopped using the models without telling investors or disclosing the errors.
In separate orders, the SEC also found that AUIM’s former global chief investment officer, Bradley Beman, and former director of New Initiatives, Kevin Giles, each were a cause of certain of AUIM’s violations. Beman did not take reasonable steps to make sure the mutual funds’ models worked as intended and that Beman and Giles both contributed to AUIM’s compliance failings related to the development and use of models. Beman and Giles agreed to settle the SEC’s charges without admitting or denying the findings and pay, respectively, $65,000 and $25,000 in penalties that also will be distributed to affected investors.