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.
Two Sigma agreed to pay $90 million in civil penalties to settle the SEC’s charges that they failed to reasonably address known vulnerabilities in their investment models and that they violated the SEC’s whistleblower rule Rule 21F-17(a) through restrictive language in separation agreements.
SEC Rule 21F-17(a) prohibits entities from “tak[ing] any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”
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.”
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