WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission on Thursday settled charges against hedge fund Two Sigma over failure to address known vulnerabilities in its investment models, the regulatory agency said.

Two Sigma voluntarily repaid $165 million to impacted funds and accounts during the SEC's investigation and agreed to pay $90 million in civil penalties to settle the SEC's charges, the agency said in a statement.

The SEC said that in or before March 2019, Two Sigma employees identified and recognized vulnerabilities in certain Two Sigma investment models that could negatively impact clients' investment returns, but the hedge fund waited until August 2023 to address the issues.

Despite recognizing these vulnerabilities, Two Sigma failed to adopt and implement written policies and procedures to address them and failed to supervise one of its employees who made unauthorized changes to more than a dozen models, which resulted in Two Sigma making investment decisions that it otherwise would not have made on behalf of its clients, the SEC added.

"After proactively reporting the issue in 2023 and promptly remediating negatively impacted clients, Two Sigma is pleased to have reached a resolution with the SEC, putting this matter behind us," a spokesperson of the hedge fund said.

"We are committed to acting with the utmost integrity and have made a range of enhancements to our operational policies, procedures, and oversight," the hedge fund, which has $60 billion in assets under management, added.