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“I also became interested in the return-generating process in the U.S. equity market, a subject pioneered by Barr Rosenberg, then at the University of California at Berkeley.”

The trajectory from faculty to fatcat is often impressive and inspiring. To come up with original ideas that make you and other people rich can be very cool. Here a Nobel Prize recipient, William Sharpe, thanks Barr Rosenberg, once a Berkeley professor, now a financial titan, for his pioneering work in computer-based trading. Berkeley’s business school boasts of its graduates’ internships with the outfit that bears his name.

Barr has now been barred from the securities business.

[I]n late June 2009 a [Barr Rosenberg] employee discovered an error in the code of a complex automated optimization model that caused $217 million in losses in about 600 client portfolios. After the employee discussed his finding with Rosenberg and other employees, the SEC claims Rosenberg directed them to keep quiet about the error and not to inform anyone else about it.

Rosenberg also directed that the error not be corrected at the time.

… It is a hard fall for Rosenberg, a supremely wealthy man and widely respected academic, who pioneered the use of quantitative techniques to implement investment strategies for decades.

His clients lost hundreds of millions of dollars. Barr will pay a $2.5 million fine.

Margaret Soltan, September 26, 2011 9:25AM
Posted in: beware the b-school boys

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