Investment Adviser Firm Fined For Providing Inaccurate Data to Brokers (with Lofchie Comment)

The SEC charged an investment adviser firm with providing inaccurate trade data to four prime brokers. This created inaccuracies in the brokers' books and records, and resulted in unreliable data being provided to the SEC for use in its investigations.

According to the SEC order, the erroneous data relayed to the four brokers had a significant impact. The brokers listed approximately 552 million shares inaccurately in their books and records. The false information also was incorporated into data that the brokers sent to regulators electronically, resulting in approximately 14.4 million shares being reported falsely in response to the SEC's "blue sheet" requests.

The investment adviser firm agreed to pay a $4.25 million penalty to settle the charges.

Lofchie Comment: This is a very substantial penalty for recordkeeping failures that did not occur during the commission of a fraud. It is possible that the adviser's poor reporting provoked this large penalty because the SEC was either deprived of the ability to go after the real bad guys or sent down wrong rabbit holes. But this case emphasizes that solid and accurate records are essential to enforcing the law. Whatever one's view might be of the investment adviser's fine, the size certainly sends a message to firms (and not only advisers): get recordkeeping and regulatory reporting right or risk big-time penalties.

See: SEC Press Release.