Axa pays $240M to settle claim it hid flaw in quant model

Axa SA agreed to pay more than $240 million to resolve U.S. regulatory claims that it concealed an error in a quantitative investment model for managing client assets that led to $217 million in investor losses.

A senior manager in the company’s Axa Rosenberg unit declined to fix the error after learning about it in June 2009 and directed others to keep quiet about the problem, the Securities and Exchange Commission said today in a statement. The company agreed to return $217 million to customers who were harmed and pay a $25 million fine, the agency said.

Instead of disclosing and fixing the error that was introduced in April 2007, Axa initially attributed the model’s under-performance to market volatility, the SEC said. The firm, which subsequently repaired the error for all portfolios, didn’t have procedures to ensure the model would assess certain risk factors, the agency said.

“Quant managers must be fully forthcoming about the risks of their model-driven strategies, especially when errors occur and the models don’t work as predicted,” Bruce Karpati, co- chief of the SEC enforcement’s asset management unit, said in the statement.

Axa, France’s biggest insurer, settled the allegations without admitting or denying wrongdoing, the SEC said.

“We deeply regret that the coding error adversely impacted many of our clients,” Axa Rosenberg chairman Dominique Carrel- Billiard said in a statement. “The exhaustive review that we undertook of this matter reflects our commitment to regaining our client’s confidence and restoring trust.”

AXA Rosenberg has taken several actions to reinforce and further enhance its investment platform, including the appointment of Jeremy Baskin as global chief executive officer, according to the statement.
–Bloomberg News–