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SEC Settlement Order Points Out Adviser’s Failures in Reporting to Board

The SEC announced charges against four Transamerica 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, shareholders invested in mutual funds and strategies using the faulty models developed by adviser Aegon USA Investment Management, which along with affiliated Transamerica advisers and a broker-dealer, claimed that investment decisions would be based on Aegon’s quantitative models. The SEC found that the models, which were developed solely by an inexperienced, junior Aegon analyst, contained numerous errors, and did not work as promised. Several of the SEC’s findings show that the adviser failed to provide key information to the fund boards over the years.  For instance:

  • The adviser failed to disclose the models’ errors and Aegon’s decision to eventually stop using the model to the board of trustees of Transamerica Funds.
  • Affiliated entities failed to disclose to investors and the funds’ board that an inexperienced quantitative research analyst was the day-to-day manager of certain of the products and the extent of the analyst’s role in managing certain funds.
  • The adviser failed to disclose facts about the models’ operation and performance to the fund boards as a general matter and despite the boards’ request for such information during the Section 15(c) process when they were engaged in the adviser and sub-adviser contract renewal process.

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. In separate orders, the SEC also found that certain Aegon executives were a cause of certain of Aegon’s violations.