SEC sues Virtu Financial, accusing it of leaving client information weak

Shares of Virtu Financial have been down 7.1% after hours on Tuesday.

The SEC, in a criticism, stated its costs targeted on a interval that ran from January 2018 to April 2019.

The criticism stated broker-dealer Virtu Americas — part of Virtu Financial — ran two companies that the corporate stated have been walled off from one another. One of these companies was an order-execution service for giant institutional buyers, the place Virtu Americas usually obtained a fee for orders. The different was a proprietary buying and selling enterprise, the place Virtu Americas traded securities for its personal accounts and beneficial properties.

However, the company alleged, Virtu Americas over that interval “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 alleged that database, because of frequently-shared generic usernames and passwords, was open to “practically anyone” at Virtu Americas and its associates, together with its proprietary merchants.

The SEC alleged that Virtu’s “failure to safeguard this information created significant risk” that its proprietary merchants may share buyer information or harness its prospects’ buying and selling habits to their very own benefit. And the company stated that Virtu at instances overstated the safety measures it had in place to guard institutional buyers’ commerce information. But it stated that following these “false and misleading” statements, institutional buyers continued to execute orders by way of Virtu, resulting in hefty commissions for Virtu Americas.

The SEC is asking the defendants to surrender any beneficial properties constructed from the alleged exercise and pay civil penalties.

“At a time when Virtu Americas handled around a quarter of all market orders placed by retail investors in the U.S., we allege that proprietary traders had nearly unfettered access to material nonpublic information about its institutional customers’ trades — information which could be abused for personal gain,” Gurbir S. Grewal, director of the SEC’s enforcement division, stated in an announcement.

“Despite the absence of any critical safeguards whatsoever around this information, we further allege that Virtu repeatedly misled institutional customers and the market about how Virtu Americas was protecting this valuable data to generate significant commissions,” he continued.

“Virtu allegedly painted a materially misleading picture as to the safeguards it had in place to protect its customers’ confidential information, even when customers specifically asked about the firm’s handling of their post-trade information,” Carolyn Welshhans, affiliate director of the SEC’s enforcement division, stated in an announcement.

Virtu, in an announcement on Tuesday, stated it had been responding to requests for data from the SEC over the matter. In a submitting in July, Virtu stated it had acquired a discover, and that it anticipated the SEC to file an motion towards the corporate. But it stated the lawsuit “focuses on hypothetical internal access to data.”

“Significantly, the SEC does not allege, and there is no evidence to indicate, that any data was ever accessed or used in an inappropriate manner,” the corporate stated in an announcement.

It additionally stated that it “continuously maintained” insurance policies to forestall misuse of confidential data. And whereas it stated that “hypothetical accessibility” on some commerce information “was self-identified” throughout a routine SEC examination, it took steps to strengthen controls.

Virtu additionally stated that the SEC’s motion adopted public criticism the corporate manufactured from sure proposed laws and a lawsuit it filed towards the company intending to hunt extra element about its rulemaking course of.

“Unfortunately, the SEC’s position appears to be driven by politics and headlines rather than the facts and the law,” Chief Executive Douglas A. Cifu stated in an announcement.

“We will always seek to act rationally and manage risk and exposure responsibly on behalf of our firm and our investors,” he continued. “Therefore, under these circumstances, we look forward to vigorously defending ourselves in court against these meritless allegations while maintaining our focus on serving clients and markets globally and creating long-term value for our shareholders.”