07/14/2015 10:00 AM EDT
The Securities and Exchange Commission today charged OZ Management LP with providing inaccurate trade data to four prime brokers, causing inaccuracies in the brokers’ books and records and in data provided to the SEC in investigations. OZ Management, an investment adviser for numerous Och-Ziff funds, admitted wrongdoing and agreed to pay a $4.25 million penalty to settle the charges.
According to the SEC’s order instituting a settled cease-and-desist proceeding, for nearly six years, ending in December 2013, OZ Management misidentified some trades in data provided to four of its prime brokers. Although trade settlement was unaffected, the erroneous data had a significant impact, causing the four prime brokers to inaccurately list approximately 552 million shares in their own books and records. The erroneous information also was incorporated into data that brokers provide electronically to regulators, resulting in approximately 14.4 million shares being inaccurately reported in response to the SEC’s “blue sheet” requests. FINRA made several referrals to the Commission based on the incorrect trade data.
Detailed trade data on “blue sheets,” named for the original paper form, help the SEC investigate conduct such as insider trading and market manipulation, and reconstruct trading after extreme market volatility. The SEC discovered OZ Management’s violations during an investigation in 2013, when it determined that the firm’s own files identified certain trades differently than the blue sheets. The discrepancy arose for trades where OZ Management did not characterize sales as long or short based on how they were marked when they were sent to the market but filtered them based on other factors, such as the relevant fund’s position in the stock at the prime broker. As a result, the way trades were identified sometimes changed, causing some long sales to be erroneously shown as short sales when OZ Management provided the data to its prime brokers. OZ Management has since provided corrected historical information to the affected prime brokers who are working to make their own corrections.
“The SEC relies on the accuracy of the books and records of financial institutions and blue sheet data,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “OZ Management’s inaccurate data had a substantial ripple effect that the SEC staff discovered through diligent investigative work.”
This is the second recent SEC enforcement action involving blue sheets. In 2014, the Commission sanctioned Scottrade for failing to provide accurate and complete blue sheet submissions to the SEC.
The SEC’s order finds that OZ Management’s conduct caused violations by four prime brokers of the federal securities laws and SEC rules requiring accurate books and records. The SEC also found that OZ Management wrongfully purchased stock during a restricted period for a secondary offering in 2011, in violation of SEC Rule 105. OZ Management admitted the facts in the SEC’s order and consented to a cease-and-desist order. In addition to the $4.25 million penalty, OZ Management agreed to return $243,427 of ill-gotten trading gains and prejudgment interest from its trading in violation of Rule 105.
The SEC’s investigation was conducted by Ann Rosenfield, John Marino, Ainsley Kerr and Carolyn M. Welshhans of the Enforcement Division’s Market Abuse Unit. The case was supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and co-deputy unit chief Robert A. Cohen.
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