The US Securities and Exchange Commission (SEC) has announced a settlement with hedge fund Two Sigma over charges related to its failure to address known vulnerabilities in its investment models, according to a report by Reuters.
As part of the settlement, Two Sigma voluntarily reimbursed $165m to affected funds and accounts during the SEC’s investigation and agreed to pay $90m in civil penalties.
According to the SEC, Two Sigma employees had identified vulnerabilities in certain investment models as early as March 2019, which could potentially harm clients’ investment returns. However, the firm did not act to resolve these issues until August 2023.
Despite recognising the vulnerabilities, Two Sigma did not implement proper written policies and procedures to address them and failed to supervise an employee who made unauthorised alterations to more than a dozen models. These changes led to investment decisions that Two Sigma otherwise would not have made on behalf of its clients, the SEC stated.
“After proactively reporting the issue in 2023 and promptly remediating negatively impacted clients, Two Sigma is pleased to have reached a resolution with the SEC, putting this matter behind us,” a spokesperson of the hedge fund said.
“We are committed to acting with the utmost integrity and have made a range of enhancements to our operational policies, procedures, and oversight,” the hedge fund, which has $60bn assets under management, added.
