Finance software bug causes $217m in investor losses
Dev pays $2.5m for hiding decimal-percentage flaw
A developer of financial software has agreed to pay $2.5 million to settle charges stemming from his concealment of a bug that caused about $217 million in investment losses.
Barr M. Rosenberg, 68, of Sea Ranch, California, developed the quantitative investment modeling software and put it into production in 2007 to help clients make investment decisions. The program captured and processed huge amounts of data contained in financial reports and other publicly available information to balance publicly traded company's earnings and valuation against common risk factors.
After pioneering the field and serving as the original developer, he went on to oversee code improvements over the next few years.
In 2009, an employee of Rosenberg's company, Barr Rosenberg Research Center, discovered a two-year-old bug in the code that caused it to incorrectly calculate risks. The error stemmed from the failure to reconcile the use of decimals in some of the data and percentages in other information, causing risks to routinely be underrepresented. The employee disclosed his findings to Rosenberg and the firm's board of directors that same year.
“Rosenberg directed the others to keep quiet about the error and to not inform others about it, and he directed that the error not be fixed at that time,” officials with the Securities and Exchange Commission alleged (PDF). The error caused about $217 million in losses to more than 600 client portfolios.
In addition to paying the $2.5 million penalty, Rosenberg agreed to never again work in the securities industry.
The SEC said Rosenberg willfully violated anti-fraud provisions of the Investment Advisers Act of 1940. He agreed to the penalties without admitting or denying the SEC's findings.
The agreement comes seven months after a related Rosenberg firm, AXA Rosenberg, agreed to pay $242 million to settle charges. ®
This article was updated to make clear the amount of investment losses was "about $217 million," that 2007 was the year the software went into production, and that AXA Rosenberg and Barr Rosenberg Research Center are related firms.
Presumably there are $217m of windfall profits on the other side of the deals. Will the winners pay him a £2.5m bonus?
Thought not. Typical finance 'industry'. We lose and it's everybody else's fault, we win and it's trebles all round.
Not finding *every* bug in a piece of software is understandable.
Finding it, not *fixing* it and not *telling* anyone about it is unforgivable.
Let's see them try to sell their *next* version of their software with that track record.
I would disagree with your comments about making devs responsible. If you are writing code that is mission critical to a business, then at least you should have a robust set of test procedures to ensure that code is returning expected results. Unit Testing, UAT and all manners of other methods are hardly new to us.
If your code is flawed and it causes problems or losses, then you must willingly accept the responsibility and face the music.
I led a code review for the London Internation Financial Futures Exchange new back office system many years ago and given the importance of what this system did, it was extremely important to ensure all i´s were correctly dotted etc.
The company that actually wrote the code had done a simply outstanding job of creating the whole end to end test process, so that it actually did what it said on the tin. No easy feat and highly laudible. Wish I could say the same for many other organisations I´ve worked for down the years.
With responsibity comes accountability.