United States SEC Fines Hedge Fund Two Sigma $90 Million for Failure in Fiduciary Duties to Address Identified Vulnerabilities in Investment Models for 4 Years Until 2023 But Flagged in 2019 & Requiring Departing Employees to Acknowledge Not to Have Filed Complaint to Government Agencies Violating Whistleblower Protection, Two Sigma Repaid $165 Million to Impacted Funds & Accounts
19th January 2025 | Hong Kong
The United States Securities and Exchange Commission (SEC) has fined hedge fund Two Sigma $90 million for failure in fiduciary duties to address identified vulnerabilities in investment models for 4 years until 2023 but flagged in 2019, and requiring departing employees to acknowledge not to have filed complaint to government agencies violating the whistleblower protection. Two Sigma had repaid $165 million to impacted funds & accounts. United States SEC (16/1/25): “The Securities and Exchange Commission today announced settled charges against New York-based investment advisers Two Sigma Investments LP and Two Sigma Advisers LP (collectively, Two Sigma) for breaching their fiduciary duties by failing to reasonably address known vulnerabilities in their investment models and for related compliance and supervisory failures, as well as for separately violating the Commission’s whistleblower protection rule. Two Sigma voluntarily repaid impacted funds and accounts $165 million during the SEC’s investigation and agreed to pay $90 million in civil penalties to settle the SEC’s charges. According to the SEC’s order, in or before March 2019, Two Sigma employees identified and recognized vulnerabilities in certain Two Sigma investment models that could negatively impact clients’ investment returns, but Two Sigma waited until August 2023 to address the issues. Despite recognizing these vulnerabilities, Two Sigma failed to adopt and implement written policies and procedures to address them and failed to supervise one of its employees who made unauthorized changes to more than a dozen models, which resulted in Two Sigma making investment decisions that it otherwise would not have made on behalf of its clients. In addition, the SEC’s order separately finds that Two Sigma violated the Commission’s whistleblower protection rule by requiring departing individuals, in separation agreements, to state as fact that they had not filed a complaint with any governmental agency. This requirement, in effect, could identify whistleblowers and prohibit whistleblowers from receiving post-separation payments and benefits, both of which are actions to impede departing individuals from communicating directly with Commission staff about possible securities law violations, in violation of the whistleblower protection rule. The SEC’s order finds that Two Sigma Investments and Two Sigma Advisers willfully violated the antifraud provisions of the Investment Advisers Act of 1940 and the Advisers Act’s compliance rule, as well as Rule 21F-17(a) under the Securities Exchange Act of 1934, which prohibits impeding an individual from communicating with SEC staff about a possible securities law violation. Without admitting or denying the SEC’s findings, Two Sigma Investments and Two Sigma Advisers agreed to a cease-and-desist order imposing a censure and a penalty of $45 million each, totaling $90 million.”
“ United States SEC Fines Hedge Fund Two Sigma $90 Million for Failure in Fiduciary Duties to Address Identified Vulnerabilities in Investment Models for 4 Years Until 2023 But Flagged in 2019 & Requiring Departing Employees to Acknowledge Not to Have Filed Complaint to Government Agencies Violating Whistleblower Protection, Two Sigma Repaid $165 Million to Impacted Funds & Accounts “
United States SEC Fines Hedge Fund Two Sigma $90 Million for Failure in Fiduciary Duties to Address Identified Vulnerabilities in Investment Models for 4 Years Until 2023 But Flagged in 2019 & Requiring Departing Employees to Acknowledge Not to Have Filed Complaint to Government Agencies Violating Whistleblower Protection, Two Sigma Repaid $165 Million to Impacted Funds & Accounts
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