SEC orders $1 million penalty for advisor accused of misleading Pennsylvania pension fund
3 min read
The Securities and Exchange Commission has settled charges against Chicago-based investment advisor Aon Investments and in a separate action, the firm’s former partner Claire Shaughnessy for misleading the Pennsylvania Public Employees’ Retirement System (PSERS) on a certain discrepancy when calculating investment returns.
Without admitting or denying the findings, both Aon and Shaughnessy consented to the orders that they violated Section 206(2) of the Advisers Act, with Aon agreeing to a censure, to pay a civil penalty of $1 million and disgorgement and prejudgment interest of $542,187. Shaughnessy agreed to a civil penalty of $30,000.
“Investment advisers must be scrupulously honest with their clients,” said LeeAnn Gaunt, chief of the Public Finance Abuse Unit. “Pension funds and other municipal entities should be able to trust that their investment advisers are telling them the truth.”
Scott Weaver
The action originated in June 2020, when Aon, which has served as investment adviser to PSERS since 2013, calculated PSERS investment returns, which were then used for calculating what is known as “risk share,” a provision in the Pennsylvania Pension Code that requires certain public school employees to contribute more to the retirement fund if certain investment return targets aren’t met. The target for the nine-year period ended on June 30, 2020 was 6.36%.
In December 2020, Aon reported to PSERS that its Risk Share Return Rate was 6.38%, high enough to avoid triggering the risk share provision. But PSERS staff had raised questions about the calculation, asking the firm to investigate a 37 basis point discrepancy between the 2015 performance returns used to calculate the Risk Share Return Rate and those returns reported for 2015 in the Commonwealth of Pennsylvania’s Annual Comprehensive Financial Report.
“In response to these inquiries from PSERS staff, Aon failed to adequately investigate the discrepancy,” the SEC complaint said. “Aon also misstated to PSERS that the discrepancy was not due to errors in the 2015 returns used to calculate the Risk Share Return Rate, but instead reflected retroactive adjustments to the returns reported in the Annual Financial Report to reflect updated figures received after quarter close.”
The firm also provided two other reasons to PSERS for the 37 basis point discrepancy that they had already ruled out as causes.
Then in early 2021, Aon pointed out the errors in the underlying performance data, realized those errors impacted PSERS overall return and required recalculation. By March, Aon reported the real rate at 6.34%, triggering risk share and requiring additional contributions from employees, but still did not know the causes of the error, telling PSERS that it was due to “data corruption” from an analyst uploading NAV and cash flow data.
PSERS launched an internal investigation into the matter and faced a Department of Justice probe that has since been closed.
Shaughnessy was dinged particularly for being Aon’s lead partner in its engagements with PSERS, a role she was in from 2013 to 2023.
