On July 14, 2015, the Securities and Exchange Commission (“SEC”) brought an enforcement action against OZ Management LP (“OZ”), an SEC-registered investment adviser for giving inaccurate trade information to certain broker-dealers. The SEC’s final order, which was issued upon OZ’s agreement to settle for a $4.25 million penalty and the return of gains plus interest, stated that “for nearly six years, ending in December 2013, OZ Management misidentified some trades in data provided to four if its prime brokers.”
According to the SEC, the misidentification “had a substantial ripple effect” as it caused the prime brokers to report erroneous trade data that affected “blue sheets”. Information provided in blue sheets is used by the SEC to, among other things, identify potential insider trading and market manipulation, and the contents according to the order “play a critical role in the Commission’s Enforcement program.”
Once the errors were discovered, OZ worked with the SEC and provided corrected information to prime brokers, who in turn “are working with the Commission to resubmit corrected blue sheets to the Commission and address the inaccurate information in the systems they use to maintain records required by the Commission’s rules.”
Having accurate and complete books and records and reporting correct information to regulators are requirements under both federal and state securities laws. To help ensure compliance with these requirements, firms may want to consider:
- Utilizing a books and records matrix that identifies and lists all required records and includes the maintenance controls in place, and the person or department responsible for creation and maintenance.
- Performing periodic testing, such as comparing reported data with firm records
- Performing annual audits of the firm’s books and records
Core Compliance can assist firms with their monitoring, auditing, and testing efforts, and even perform independent compliance reviews. For more information on this and other related subjects, please contact us at (619) 278-0020 to schedule a consultation.