On December 2, 2025, the U.S. District Court for the Southern District of New York approved a settlement between the U.S. Securities and Exchange Commission (SEC) and a broker-dealer for policy and procedure violations and a $2.5 million penalty. As part of the settlement, the SEC also abandoned negligence-based fraud claims against the broker-dealer and its parent company, even though the SEC had already defeated a motion to dismiss those claims. This case provides insights regarding enforcement under current SEC leadership.
Background
In SEC v. Virtu Financial Inc., No. 1:23-cv-8072-JGK (S.D.N.Y.), the SEC sued Virtu Financial Inc. (VFI), a publicly traded company, and Virtu Americas LLC (VAL), a broker-dealer and subsidiary of VFI. The SEC alleged that, from January 2018 through April 2019, the defendants made material misrepresentations about VAL’s protection of its customers’ material nonpublic information (MNPI).
Specifically, in its Amended Complaint, the SEC alleged that the defendants “repeatedly – and falsely – told their institutional customers and the public that VAL used ‘information barriers’ and ‘systematic separation between business groups’ in order to safeguard these customers’ MNPI,” but, in fact, “VAL did not place this information behind information barriers that safeguarded MNPI.” Am. Compl. ¶ 2, SEC v. Virtu Fin. Inc., No. 1:23-cv-8072-JGK (S.D.N.Y. Jan. 12, 2024). Instead, according to the SEC, during the relevant time, “virtually all employees at VAL and its affiliate broker-dealers could access MNPI regarding customers’ trades.” Id.
The SEC charged VFI and VAL with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act), which prohibit fraud in the offer or sale of securities and require at least negligent conduct. See Am. Compl. ¶¶ 61-72; 15 U.S.C. §§ 77q(a)(2), 77q(a)(3). The SEC also charged VAL with violating Section 15(g) of the Securities Exchange Act of 1934 (Exchange Act), which requires broker-dealers to establish “written policies and procedures reasonably designed … to prevent the misuse” of MNPI. 15 U.S.C. § 78o(g); see Am. Compl. ¶¶ 73-75.
Motion to Dismiss Denied
The defendants moved to dismiss all counts of the Amended Complaint except one of the fraud claims against VAL. In August 2024, the Court heard oral argument and ruled from the bench, denying the motion to dismiss in its entirety. See Hearing Tr. at 26-41, SEC v. Virtu Fin. Inc., No. 1:23-cv-8072-JGK (S.D.N.Y. Aug. 12, 2024). Interestingly, at oral argument, counsel for the SEC and the defendants agreed there were no cases on point regarding Section 15(g) of the Exchange Act. Id. at 13, 21.
The Settlement
In November 2025, the parties informed the Court that they reached a settlement, and they presented a proposed final judgment to resolve the case. Under the terms of the settlement, without admitting or denying the SEC’s allegations, VAL agreed to be permanently enjoined from violating Section 15(g) of the Exchange Act and to pay a civil penalty of $2.5 million. See Final Judgment at 1-2, SEC v. Virtu Fin. Inc., No. 1:23-cv-8072-JGK (S.D.N.Y. Dec. 2, 2025). Additionally, as part of the settlement, the SEC agreed to drop its fraud claims against both defendants, as those claims are not mentioned in the final judgment. See id. at 1-3.
Takeaways
This case, which was brought by the SEC under former Chairman Gary Gensler and settled under current Chairman Paul Atkins, highlights at least two points:
First, although the current SEC under Chairman Atkins has often avoided technical non-fraud violations in favor of traditional fraud matters, the SEC remains willing to pursue technical, non-fraud violations (like the policy and procedure claim against VAL) under certain circumstances. So, broker-dealers should remain vigilant to ensure their compliance functions, including their policies and procedures, are effective.
Second, in the Virtu litigation, the SEC voluntarily dropped fraud claims that already survived a motion to dismiss. The SEC recently did the same thing in another highly publicized case that originated under former Chairman Gensler. This seems to show that current SEC leadership remains open to discussing the merits of claims, and potentially dropping claims as part of a settlement, even after defeating a motion to dismiss. Although that is not necessarily a new development, it serves as a reminder that defendants should continue to engage the SEC staff in constructive dialogue after the opening shots of litigation have been fired.