SEC Pursues Advanced Investment Management Executives

April 8, 2005 ( - The Securities and Exchange Commission (SEC) is going after executives at a now-defunct investment firm over unauthorized trades that led to over $400 million in pension fund and other investor loses.

One executive with what use to be Advanced Investment Management (AIM) – president Jeff Thomas Allen –     has already settled with the regulator to the tune of $175,000 over charges that he made unauthorized trades for clients, according to the Pittsburgh Post-Gazette. The firm handled pension money for multiple funds, including t he Allegheny County Retirement Board and thePennsylvania State Employees Retirement System.

Another executive – vice president James Barlow Smith – is currently being pursued by the SEC over similar charges. The firm went out of business in 2002 after numerous clients sued for violations of investment agreements.

AIM specialized in enhanced indexing, a strategy meant to beat broad market indices. Instead of simply buying stocks that make up the S&P 500,   AIM purchased futures contracts that cost about five cents to the dollar of what it   would have cost to purchase the stocks that make up the index, accordingto the Post-Gazette.Other money was invested in short-term, high-grade debt orcash equivalents, which was a strategy designed to produce a return about 0.7 % to 1.25% higher than what the S&P 500 earned.
The SEC has charged that between at least January and July 2002, the firminvested more in the futures contracts than many clients had authorized, andthat both Allen and Smith did not disclose the trades in monthlyreports sent to clients. When the index fell 29% between April and June of 2002, losses were magnified in accounts where unauthorized trades weremade.

In June 2003, AIM settled suits brought by multiple pension funds over the losses, but since there was very little money left, the claims were settled at 3 ½ cents on the dollar (See Advanced Investment Management Settles Pension Loss Claims ).