The SEC Fines Two Sigma Investment Advisors $90 million
Two New York-based investment advisors, Two Sigma Investments LP and Two Sigma Advisers LP, have reportedly been fined $90 million by the Securities and Exchange Commission (SEC) for failing to address vulnerabilities in their investment models, according to an SEC administrative announcement.
Employees reportedly identified these vulnerabilities in March 2019, but the firms allegedly did not resolve the issues until August 2023, potentially harming client returns. The SEC found the firms lacked adequate policies to fix the vulnerabilities and allegedly failed to supervise an employee who made unapproved changes to over a dozen models, leading to questionable investment decisions.
Additionally, the firms reportedly violated the SEC’s whistleblower protection rule by requiring departing employees to confirm they had not filed complaints with governmental agencies, potentially discouraging whistleblowing.
The firms have neither admitted nor denied the charges but have reportedly agreed to pay $45 million each in civil penalties. They also voluntarily reimbursed $165 million to impacted funds and accounts during the investigation. Two Sigma stated it proactively reported the issue in 2023, has since resolved client impacts, and implemented improvements to its operational policies and oversight.
Fiduciary Duty
According to the order, Two Sigma allegedly willfully violated Section 206(2) of the Advisers Act.
Section 206(2) of the Investment Advisers Act of 1940 is a key provision aimed at preventing fraud by investment advisers. It establishes a fiduciary duty for advisers and prohibits them from engaging in any conduct that operates as a fraud or deceit upon clients or prospective clients.
Common Violations:
- Failure to Disclose Material Information: Not informing clients about fees, conflicts of interest, or potential risks in their investments.
- Inadequate Supervision or Policies: Failing to supervise employees or implement systems to detect and prevent fraud.
- Negligence in Managing Client Assets: Not promptly addressing known vulnerabilities or risks that could harm client investments, as seen in the Two Sigma case.
Free Consultation with Securities Fraud Attorneys
If you are concerned about investment losses with Two Sigma, please contact the securities attorneys at The White Law Group. For a free consultation, please call the offices at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
We represent investors in FINRA arbitration claims in all 50 states. Our attorneys have recovered millions of dollars from many brokerage firms in the past.
The Financial Industry Regulatory Authority (FINRA) operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.
Last modified: January 17, 2025
