SEC Charges Two Sigma for Failing to Address Known Vulnerabilities in its Investment Models

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.