U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25827 / September 12, 2023
Securities and Exchange Commission v. Virtu Financial Inc. and Virtu Americas LLC, No. 1:23-cv-08072 (S.D.N.Y. filed Sept. 12, 2023)
SEC Charges Virtu for False and Misleading Disclosures Relating to Information Barriers
Virtu broker-dealer also charged with failure to establish, maintain, and enforce policies and procedures to protect sensitive customer information.
The Securities and Exchange Commission today filed charges against broker-dealer Virtu Americas LLC and its parent company, Virtu Financial Inc. (collectively, Virtu), for making materially false and misleading statements and omissions regarding information barriers to prevent the misuse of sensitive customer information.
As alleged in the SEC's complaint, Virtu Americas and its affiliates operated two businesses that it purported to have walled off from each other: an order execution service for large institutional customers, whereby Virtu Americas executed customer orders, typically for a commission, and a proprietary trading business, through which Virtu Americas bought and sold securities for its own accounts and benefit. From approximately January 2018 through the beginning of April 2019, however, Virtu Americas allegedly failed to safeguard a database that contained all post-trade information generated from customer orders routed to, and executed by, Virtu Americas, including customer identifying information and other material nonpublic information. The SEC’s complaint alleges that this database was accessible to practically anyone at Virtu Americas and its affiliates, including their proprietary traders, through two sets of widely known and frequently shared generic usernames and passwords. Virtu Americas’ failure to safeguard this information created significant risk that its proprietary traders could misuse it or share it outside Virtu Americas. For example, a Virtu Americas proprietary trader allegedly could observe that Virtu Americas had executed the orders of a large institutional customer throughout the day, understand that the same customer may follow a similar trading pattern over the next days, and take advantage of such information by trading ahead of the customer’s subsequent orders.
Nonetheless, during this fifteen-month period when Virtu Americas failed to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of that information, Virtu misled customers about the existence and adequacy of such information barriers. As alleged in the SEC’s complaint, in some instances Virtu overstated the controls, barriers and processes it had in place to secure its institutional customers’ post-execution trade data, and in others falsely represented to those customers that only employees with a need to see such information – a group that did not include proprietary traders – could do so. Following these false and misleading statements, a number of institutional customers continued to use Virtu Americas to execute their orders, resulting in significant commissions for Virtu Americas.
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that Virtu violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and that Virtu Americas violated Section 15(g) of the Securities Exchange Act of 1934, and seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties.
The SEC’s investigation was conducted by Alexandra M. Arango and David Bennett of the Market Abuse Unit, and supervised by David A. Becker, Paul Kim, Joseph Sansone, and Carolyn M. Welshhans. The litigation will be led by Damon Taaffe under the supervision of James Carlson and James Connor. The Division of Examinations conducted an examination that contributed to the investigation.