(updated with correction)
The computer coding error at AXA Rosenberg Investment Management, undetected for two years, was made by a computer programmer in January 2007.
The mistake affected some of the quant firm's investment strategies immediately, while others were affected in April 2007 when a new risk model was put in place, according to those at the company familiar with what happened.
The error was discovered in June 2009 by a programmer, who notified founder and Chairman Barr Rosenberg; Thomas Mead, director of AXA Rosenberg's research center; and Agustin Sevilla, global chief investment officer, according to company sources and disclosures made to clients.
But Messrs. Rosenberg, Mead and Sevilla, while working to correct the error, never brought the matter to the attention of AXA Rosenberg Global CEO Stephane Prunet. Mr. Prunet was not informed of the situation until last October, when another programmer told him about it, several current and former employees say.
An AXA Rosenberg letter to clients on April 15 of this year said a fix to the computer code was completed sometime between September and mid-November 2009, almost three years after the error was made.
In June, AXA Rosenberg officials said an outside law firm hired to do a review found that Messrs. Rosenberg, Mead and Sevilla had violated the firm's escalation policy in limiting dissemination of information regarding the error. Messrs. Rosenberg and Mead also violated the company's code of ethics, the review found.
Messrs. Rosenberg and Mead were forced to resign. Mr. Rosenberg and his business partner, Kenneth Reid, also were required to sell their remaining 25% of the company. Mr. Reid still serves as the company's vice chairman.
Messrs. Rosenberg, Mead, Reid and Sevilla did not return repeated phone calls seeking comment.
Current and former employees supportive of Mr. Rosenberg theorize that an investment control provision in the ownership agreement between Mr. Rosenberg and AXA Group, which allowed AXA to seize control the investment process if there were errors in the process, is the reason Messrs. Rosenberg, Mead and Sevilla failed to report the coding error to officials at AXA Group.
Plus, the sources said, the three men believed the error had little impact on investment returns “They felt the error was immaterial and moved on,” said one former top official of the company who had knowledge of the situation.
Indeed, a review by the parent AXA Group has determined that clients may have lost $82 million due to the coding error, a relatively small amount given AXA's assets under management.
Still unclear is what action, if any, Mr. Prunet took after learning of the coding error last October.
Those familiar with the situation say a formal internal review of the coding error wasn't begun until January, which was followed by the hiring of the law firm. Institutional clients first learned of the error through the April client letter, setting in motion client terminations and the loss of billions of assets under management.