Two Sigma to Pay $90 Million SEC Settlement

The U.S. Securities and Exchange Commission (SEC) has settled charges against Two Sigma Investments and Two Sigma Advisers for breaching fiduciary duties, specifically for failing to address known vulnerabilities in their investment models. The firm has agreed to pay $90 million in civil penalties and has voluntarily repaid $165 million to affected funds during the investigation. The SEC's findings indicate that employees identified these vulnerabilities as early as 2019, but Two Sigma did not take action until August 2023. Additionally, the SEC found that Two Sigma violated whistleblower protection rules by requiring departing employees to deny filing complaints with governmental agencies. This practice could discourage communication with the SEC about potential violations. The settlement underscores the importance of compliance and supervisory diligence in investment management.