Investment adviser Oz Management, LP has agreed to pay a $4.25M penalty to settle SEC charges that it provided inaccurate trading data to four prime brokers. This led to inaccuracies in the books and records of the brokers, including the inaccurate listing of about 552 million shares. Also, the inaccurate trading information resulted in inaccuracies in the information given to the regulator during investigations.
The SEC’s order said that for almost six years, up through the end of 2013, the firm misidentified certain trades in information given to the brokers. Trade settlement was not impacted. However, in addition to the erroneous listings previously mentioned, the wrong information was also woven into the data that the brokers electronically provided to regulators.
Because of this, about 14.4 million shares were inaccurately reported when addressing SEC requests. It was this inaccurate information that the Financial Industry Regulatory Authority used to make a number of referrals to the agency.
The SEC discovered the purported violations during a 2013 probe when it realized that Oz Management’s files didn’t identify trades the same way as was noted on blue sheets. In certain trades the investment adviser did not characterize the sales as short or long in the same way that they were marked when they were sent to the market. Instead, the trades were filtered according to other factors.
Blue sheets contain specifics of each equity or options trade that is routed through clearing brokerage firms. They are no longer actual sheets that are colored blue and are now submitted in electronic format. However, the SEC continues to rely on them just as much for conducting examinations, investigating certain misconduct, and reconstructing trading in the wake of market volatility.
Oz Management not only settled the SEC charges but also admitted to wrongdoing.
It was just last year that the regulator filed a case against Scottrade for not providing complete and accurate blue sheet submissions regarding the trading of the firm and its customers. Scottrade admitted to violating the federal securities laws’ recordkeeping provisions and consented to pay a $2.5 million penalty.
Read the SEC Order (PDF)