SEC Fines Aon $1.5M for Lying to Pennsylvania Fund

The Securities and Exchange Commission Thursday settled charges with Aon, an investment adviser, for misrepresenting statements to the Pennsylvania Public School Employees’ Retirement System in a 2020 snafu that had wide-ranging consequences at the pension fund. Aon agreed to pay about $1.5 million in penalties and disgorgement.

“We are pleased with the developments today from the SEC and equally excited to be sharing such positive news with our members,” Pennsylvania PSERS Board Chairperson Richard Vague said in a statement.  “Additionally, I’d like to take the opportunity to thank staff at PSERS and our outside counsel for representing our membership so effectively in this matter.”

According to the SEC’s order, Aon reported mistaken asset performance data to Pennsylvania PSERS for the second quarter of 2015 and then misrepresented the reason for that discrepancy to the fund. The data that Aon reported was about 37 basis points higher (-0.1723 vs. -0.5087) than its previous reports to the fund.

The error led to the calculation of a nine-year return of 6.38%, reported in June 2020, when it should have been 6.34%. This proved important because Pennsylvania law requires teachers to contribute more to their pension if asset returns underperform a benchmark, in this case 6.36%. The error caused Pennsylvania PSERS to initially report that the fund’s participants (or their employers) would not need to contribute more, then later inform them that they would.

As a result of the controversy, the fund was subject to a Department of Justice investigation—which closed in August 2022 without any finding of wrongdoing—and the pension fund’s executive director and CIO both resigned in 2021.

As part of the correction process, Pennsylvania PSERS asked Aon to investigate the gap between returns reported in 2020 and those reported in 2015. Aon responded that the gap reflected an adjustment based on more recent data. This answer was false. No after-the-fact adjustments had been made, and the error was based on faulty data entry.

Aon also reported to Pennsylvania PSERS that the adjustment reflected a change in market value related to a private credit fund. According to the SEC, Aon made this representation to Pennsylvania PSERS even after records showed that Aon had ruled out this explanation about one week earlier.

The SEC also fined an individual partner at Aon $30,000 for making the misleading statements.

Pennsylvania PSERS terminated its contract with Aon in December 2023; Aon had served as the fund’s adviser since 2013. Verus Investments is the new adviser for the fund, and there is a pending lawsuit brought by Pennsylvania PSERS against Aon in August 2023.