Is Virtu Financial the new ‘political prisioner’ of the SEC?

Rick Steves

“Unfortunately, the SEC’s position appears to be driven by politics and headlines rather than the facts and the law.”

Virtu Financial, a prominent provider of global, multi-asset financial services, finds itself entangled in a legal battle with the U.S. Securities and Exchange Commission (SEC) following allegations related to its internal information barriers.

The SEC has initiated a civil lawsuit against Virtu after the company was unable to reach a settlement agreement with the regulatory body.

SEC does not allege actual inappropriate access or use

The SEC’s complaint revolves around Virtu’s internal information barriers during a specific timeframe from January 2018 to April 2019, a period that predates Virtu’s integration of post-trade data from Investment Technology Group Inc. (ITG).

The complaint alleges two main points:

  • Virtu’s policies and procedures were not reasonably designed during that period to prevent the internal misuse of material nonpublic information.
  • Certain statements made by Virtu concerning these policies and procedures were false.

However, it’s essential to note that the SEC does not allege, nor is there any evidence indicating, that any data was ever accessed or used inappropriately during this time.

Virtu vehemently rejects the SEC’s allegations

Virtu Financial vehemently rejects the SEC’s allegations and its underlying theory that a temporary hypothetical possibility of broader employee access rendered its policies and procedures “unreasonable.”

The company maintains that it has consistently upheld policies, procedures, and controls that were and are reasonably designed to prevent the misuse of confidential information, aligning with its obligations under applicable laws.

Furthermore, Virtu voluntarily disclosed to SEC staff during a routine exam in 2019 that certain post-trade data in its back-office database was hypothetically accessible to a broader group of employees for a limited period in 2018 and early 2019.

Accessibility coincided with the integration of Virtu’s KCG business

This accessibility coincided with the integration of Virtu’s KCG business into a consolidated back-office database and preceded the integration of ITG data. Importantly, during this period, other controls and policies were in place to mitigate the risk of unauthorized access or use. Virtu also developed and implemented control enhancements to further restrict database access, aligning with its established policies.

Virtu added that, during the SEC’s investigation, the firm cooperated fully, providing more than 30,000 documents over a three-year period, none of which indicated any improper use or access.

SEC’s escalation follows Virtu’s criticism of SEC market structure rule proposals

Interestingly, the SEC’s escalation of its investigation comes after Virtu publicly criticized SEC market structure rule proposals released in December 2022. Virtu also filed a lawsuit against the SEC to obtain records under the Freedom of Information Act (FOIA) related to the rulemaking process.

Douglas A. Cifu, Chief Executive Officer of Virtu, said: “Unfortunately, the SEC’s position appears to be driven by politics and headlines rather than the facts and the law.”

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