IA Settles Charges for Miscalculations and Misrepresentations on Pension Plan "Risk Share" Returns

An investment adviser was fined for failing to adequately investigate concerns raised about the miscalculation of "risk share" returns used by a Pennsylvania public pension plan, and for material misstatements and omissions about the reasons for the miscalculation.

In the Order, the SEC stated that the calculation of "risk share" under the Pennsylvania Pension Code was a trigger that would "require[] certain public school employees to contribute more to the retirement fund if certain annualized investment return targets, or 'hurdles,' are not met." The SEC said that the investment advisor reported a calculation "just high enough to avoid triggering risk share" which was then "certified" by the plan's Board of Trustees. The SEC highlighted that the pension plan staff questioned the calculations and found that the investment advisor failed to adequately investigate the concerns and then made material misstatements and omissions about the reasons for reporting discrepancies. The SEC determined that the investment advisor violated IAA Section 206(2) ("Prohibited transactions by investment advisers").

As a result, the IA agreed to (i) pay a civil penalty of $1,000,000, (ii) disgorgement of $495,098.50 and (iii) prejudgment interest of $47,089.29. The former partner agreed to (i) cease and desist from further violations, (ii) a censure and (iii) pay a $30,000 civil penalty.