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

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. Despite recognizing these vulnerabilities, Two Sigma failed to adopt and implement written policies and procedures to address them and failed to supervise one of its employees who made unauthorized changes to more than a dozen models, which resulted in Two Sigma making investment decisions that it otherwise would not have made on behalf of its clients.

Trump’s SEC To Review and Potentially Freeze Crypto Cases Without Fraud Allegations

The U.S. Securities and Exchange Commission (SEC) could see a shift in its approach to cryptocurrency enforcement under the incoming Trump administration. Reports indicate that the SEC may freeze or withdraw pending crypto cases that do not involve fraud, signaling a possible departure from the aggressive stance taken by outgoing Chair Gary Gensler. This leadership transition follows President-elect Donald Trump’s announcement to appoint crypto advocate Paul Atkins as the new SEC Chair. Atkins is expected to work closely with Republican Commissioners Hester Peirce and Mark Uyeda, who have previously criticized Gensler’s handling of the cryptocurrency industry.

Lyft wins dismissal of shareholder lawsuit over earnings report error

A federal judge on Thursday dismissed a lawsuit accusing Lyft of defrauding shareholders by waiting too long to correct a mistake in an earnings release that caused the ride-sharing company’s stock price to gyrate wildly. U.S. District Judge Trina Thompson in San Francisco said shareholders in the proposed class action did not show why it was unreasonable for Lyft to need 42 minutes to fix its Feb. 13, 2024 release, instead of doing it immediately.

A First-Day Trump Order: A Federal Stockpile of Bitcoin?

On the eve of Mr. Trump’s inauguration, the cryptocurrency industry is pushing his incoming administration to execute an audacious plan that would have seemed unimaginable just a year ago: a government program to buy and hold billions of dollars in Bitcoin.[…]

“This could be the Day 1 initiative,” said Pete Rizzo, an editor at Bitcoin Magazine, an industry news publication. “It’s certainly an idea that has come a long way in a short amount of time.”

By some estimates, the United States owns as much as $19 billion in Bitcoin that it has seized from criminals over time, a stash that the government has recently moved to sell. Some crypto executives are calling on Mr. Trump to simply hold on to that Bitcoin, which he could most likely do with an executive order. Others are pushing a more ambitious plan in which the government would acquire tens of billions of dollars in new Bitcoin, building a “strategic reserve” similar to federal stockpiles of gold and oil. That amount of spending may require congressional approval.

Dropped PCAOB probe, lawsuit spotlight audit watchdog’s challenges

The story behind a lawsuit against the Public Company Accounting Oversight Board that was dismissed last week — after a related PCAOB investigation into an unnamed Texas accounting firm was dropped — spotlights recent challenges mounted against the audit watchdog.

The complaint, John Doe Corporation v. Public Company Accounting Oversight Board filed March 27 by the accounting firm using a pseudonym, sought injunctive and declaratory relief from the board’s investigation into the firm’s practices, asserting that the process was “not just abusive, retaliatory, and excessively burdensome,” but that it was “structurally unconstitutional.”[…]

But before the case could be heard, the firm received a letter from the PCAOB on Dec. 27 indicating it had closed its investigation and was not recommending any enforcement, leaving both parties in the case to agree that the claims are “moot” and asking the court to dismiss the case, according to a Jan. 6 stipulation of dismissal. A judge entered an order dismissing the case on Jan. 7.

Outside of that agreement, each side appears to have different views of the case’s outcome.

SEC’s Case Against Elon Musk Faces Unpredictability in New Administration

But with Musk’s attorneys blasting the SEC’s case filed this week at federal court in Washington, DC, and Trump’s nominees signaling a different approach to policing markets, how the agency will resolve this one is anything but predictable.

“If this were any other president, and any other defendant other than Trump and Musk, 100% this case would go forward,” said David Slovick, a partner at Barnes & Thornburg and a former SEC enforcement attorney. “Because this is Trump and Musk, all bets are off.”

Trump may not want one of his top allies to face a high-profile lawsuit, but he also can’t just make it disappear on day one, said John Coffee, a professor at Columbia Law School.