Two Sigma faces SEC charges for neglecting known vulnerabilities in investment models
The Securities and Exchange Commission recently revealed that Two Sigma Investments LP and Two Sigma Advisers, companies based in New York, have agreed to settle charges brought against them. The allegations were related to the companies’ insufficient controls over the potential misuse of material nonpublic information.
The SEC’s investigation found that Two Sigma Investments LP failed to enforce its policies and procedures adequately to prevent the misuse of material nonpublic information. As a result, one of the firm’s analysts used confidential information obtained from a public company to make trades for an account in which he had an interest. This led to the firm receiving profits and avoided losses totaling over $20 million.
Additionally, Two Sigma Advisers was found to have failed in its obligation to ensure that the firm’s policies and procedures were implemented effectively. As a result, one of its analysts also used material nonpublic information received from a public company to trade in a personal account, resulting in profits and avoided losses of over $100,000.
To resolve the charges, Two Sigma Investments LP and Two Sigma Advisers agreed to pay disgorgement and prejudgment interest totaling over $4.6 million. They also committed to implementing additional compliance measures to prevent similar misconduct in the future.
In response to the settlement, an SEC official emphasized the importance of investment advisers maintaining effective controls to prevent the misuse of material nonpublic information. This ensures that investors can have confidence in the integrity of the markets and the fair treatment of all participants.
The settlement with Two Sigma Investments LP and Two Sigma Advisers serves as a reminder to investment firms of the need to prioritize compliance and ethical behavior. By implementing robust controls and procedures, companies can safeguard against potential misconduct and protect the interests of their clients and the integrity of the financial markets.
Overall, the SEC’s enforcement action against Two Sigma Investments LP and Two Sigma Advisers highlights the regulatory agency’s commitment to holding investment advisers accountable for their actions. Compliance with securities laws and regulations is crucial in upholding the principles of fairness, transparency, and integrity in the financial industry.
