SEC settles expenses in opposition to US hedge fund over funding mannequin vulnerabilities

By Kanishka Singh

WASHINGTON (Reuters) – The U.S. Securities and Trade Fee on Thursday settled expenses in opposition to hedge fund Two Sigma over failure to handle recognized vulnerabilities in its funding fashions, the regulatory company mentioned.

Two Sigma voluntarily repaid $165 million to impacted funds and accounts in the course of the SEC’s investigation and agreed to pay $90 million in civil penalties to settle the SEC’s expenses, the company mentioned in a press release.

The SEC mentioned that in or earlier than March 2019, Two Sigma staff recognized and acknowledged vulnerabilities in sure Two Sigma funding fashions that would negatively influence purchasers’ funding returns, however the hedge fund waited till August 2023 to handle the problems.

Regardless of recognizing these vulnerabilities, Two Sigma did not undertake and implement written insurance policies and procedures to handle them and did not supervise considered one of its staff who made unauthorized modifications to greater than a dozen fashions, which resulted in Two Sigma making funding choices that it in any other case wouldn’t have made on behalf of its purchasers, the SEC added.

“After proactively reporting the problem in 2023 and promptly remediating negatively impacted purchasers, Two Sigma is happy to have reached a decision with the SEC, placing this matter behind us,” a spokesperson of the hedge fund mentioned.

“We’re dedicated to appearing with the utmost integrity and have made a spread of enhancements to our operational insurance policies, procedures, and oversight,” the hedge fund, which has $60 billion in belongings below administration, added.