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Monday, August 27, 2018

Transamerica Shells Out More Than $97MM Over Quant Models

Reported by Neil Anderson, Managing Editor

Transamerica just settled with the SEC for more than $97 million, and it's all about problems with quant models. And a certain notorious infamous fallen ETF strategist even ties in.

Aegon USA Investment Management, Transamerica Asset Management [profile], Transamerica Financial Advisors, and Transamerica Capital agreed to disgorge nearly $53.3 million, pay $8 million in interest, and pay a $36.3 million fine over quantitative models that, the SEC claims, "were developed solely by an inexperience, junior AUIM analyst, contained numerous errors, and did not work as promised." The regulatory agency found that, when Transamerica discovered the issue, they simply stopped using the models without telling their clients. The SEC also accuses Transamerica of negligently relying on the marketing materials of F-Squared, which admitted, in a SEC settlement in 2014, to "false performance advertising" before collapsing the next year.

Transamerica's attorneys, Deborah Meshulam of DLA Piper and Sean Baldwin of Selendy Gay, did not immediately return calls for comment.

"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," states Dabney O'Riordan, co-chief of the asset management unit within the SEC's enforcement division.

A spokesperson for the different Transamerica companies shared the following statement:
This settlement concludes the U.S. Securities and Exchange Commission's (SEC) investigation into errors in the operation or implementation of asset management quantitative models previously used with certain funds and strategies, as well as related disclosures. While the models at issue are no longer in use, we recognize we must do better, and we have taken steps to enhance our policies, procedures and disclosure processes. We remain confident in our investment process and are committed to continuously improving our business. We cooperated fully with the SEC throughout the regulatory investigation of the issues and are pleased to put this matter behind us.

Separately, Bradley Beman, former global chief investment officer for Aegon USA Investment Management (AUIM) (now managing director and chief investment officer of credit and direct lending at Tortoise), and Kevin Giles former director of new initiatives AUIM, settled with the SEC for $65,000 and $25,000 in penalties each, respectively. Beman, Giles, and and Transamerica agreed to their respective SEC settlements without admitting or denying the charges.

Harris O'Brien St. Laurent & Chaudhry's Jonathan Harris, an attorney for Beman, did not immediately return a call for comment. Jenner & Block's Thomas Newkirk, an attorney for Giles, declined to comment.

The SEC investigators on the case included: David Benson, Anne Graber Blazek, and Paul Montoya in Chicago; and Michael Cohn in New York. All four are from the enforcement division's asset management unit.

The regulatory agency's investigation has been brewing for at least a year, if not longer. In August 2017, Transamerica confirmed that the SEC was looking into issues with an AUIM model powering some mutual funds and variable annuities. At the time, the company reported that "expert analyses" found that the errors "did not have a material adverse impact on fund performance." 

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