Firm Settles Charges for Unapproved Access to Algorithmic Trading Models

A firm settled SEC charges for failing to address "known material vulnerabilities" in its algorithmic investment model process and related supervisory deficiencies. The firm also settled charges for whistleblower protection violations. 

According to the Order, the firm was aware that employees had "unfettered read and write access to a firm database that stored Model 'parameters'—variable inputs that impact the stock predictions generated by Models—used by certain of [the firm's] live-trading Models." The SEC found that the firm was aware "that such personnel could make changes to these Model parameters without review or approval and that such changes could materially impact [the firm's] investment decisions for its clients."

The SEC also found that the firm failed to reasonably supervise an employee who made unauthorized changes to these parameters, causing certain funds to overperform or underperform.

In a separate charge, the SEC found that departing employees entered into separation agreements requiring that they "had not filed a complaint with any governmental agency in order to receive certain post-separation payments and benefits." The SEC stated that such agreements violate whistleblower protection prohibitions against "imped[ing] an individual from communicating directly with the Commission staff about a possible securities law violation."

The SEC charged the firm with violating Advisers Act Sections 203 ("Registration of investment advisers") and 206 ("Prohibited transactions by investment advisers") and Rule 206(4)-7 ("Compliance procedures and practices"); and SEA Rule 21F-17(a) (Staff communications with individuals reporting possible securities law violations). 

To settle the charges, the firm agreed to (i) cease and desist from future violations, (ii) a censure and (iii) pay a $90 million civil penalty.