On January 16, the U.S. Securities and Exchange Commission (SEC) announced settled charges against New York-based investment advisers Two Sigma Investments LP and Two Sigma Advisers LP. The settlement, which includes $90 million in civil penalties, resolves allegations that Two Sigma failed to address known vulnerabilities in its investment models and violated the SEC’s whistleblower protection rule, Rule 21F-17(a).
Rule 21F-17(a) prohibits companies from impeding the ability of individuals to blow the whistle to the SEC, including through restrictive language in non-disclosure agreements, separation agreements, and other employment agreements.
According to the SEC, “Two Sigma violated the Commission’s whistleblower protection rule by requiring departing individuals, in separation agreements, to state as fact that they had not filed a complaint with any governmental agency.”
“This requirement, in effect, could identify whistleblowers and prohibit whistleblowers from receiving post-separation payments and benefits, both of which are actions to impede departing individuals from communicating directly with Commission staff about possible securities law violations, in violation of the whistleblower protection rule,” the SEC claims.
Notably, according to the SEC order, Two Sigma did include carve-out language in the agreements which stated “Nothing in this Agreement (including without limitations Sections 5(g), 6, 7 and 8), the Company’s policies or any other agreement between...
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