The US Securities and Exchange Commission has ordered four businesses owned by Dutch insurer Aegon to refund $97.6m (£75.8m, €83.8m) to misled retail investors.
According to the SEC, investors put billions of dollars into mutual funds and strategies using faulty models developed by investment adviser Aegon USA Investment Management (AUIM).
AUIM is one of four entities from Transamerica, which was acquired by Aegon in 1999, named in the SEC document.
The others are investment advisers Transamerica Asset Management (TAM) and Transamerica Financial Advisors, and broker-dealer Transamerica Capital.
AUIM and the three other businesses claimed that investment decisions would be based on its quantitative models.
The SEC, however, found that the models were developed solely by an inexperienced junior AUIM analyst, contained numerous errors and did not work as promised.
The regulator also discovered that AUIM and TAM stopped using the models when they learned about the errors, but did not tell investors or disclose the information.
“Investors were repeatedly misled about the quantitative models being used to manage their investments, which subjected them to significant hidden risks and deprived them of the ability to make informed investment decisions,” said C. Dabney O’Riordan, co-chief of the SEC Enforcement Division’s Asset Management Unit.
Financial penalty breakdown
Without admitting or denying the SEC’s findings, the four Transamerica entities agreed to settle the charges and pay nearly $56.3m in disgorgement, plus $8m in interest and a $36.3m penalty.
The entire $97.6m will be distributed to affected investors.
In separate orders, the US financial watchdog also found that AUIM’s global chief investment officer, Bradley Beman, and former director of new initiatives, Kevin Giles, caused certain violations.
In particular, the SEC stated that Beman did not take reasonable steps to make sure the mutual funds’ models worked as intended.
It found 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 charges without admitting or denying the findings and pay $65,000 and $25,000, respectively, that will also be distributed to affected investors.
