January 30th, 2014
from The Securities and Exchange Commission (SEC)
The Securities and Exchange Commission today charged Scottrade with failing to provide the agency with complete and accurate information about trades done by the firm and its customers, which is commonly called “blue sheet” data. Scottrade, which is headquartered in St. Louis, agreed to settle the charges by paying a $2.5 million penalty and admitting it violated the recordkeeping provisions of the federal securities laws.
According to the SEC’s order instituting settled administrative proceedings, broker-dealers like Scottrade are required upon request to electronically provide the SEC with blue sheet data so the agency can use it to identify and analyze trades in the course of investigations and other work. Blue sheets contain the details of each equity or options trade that is routed through clearing broker-dealers. The term “blue sheet” stems from the color of the forms originally mailed to broker-dealers to complete and return to the SEC. The process shifted to an electronic format in the 1980s.
“Blue sheet information is the lifeblood of many SEC investigations and examinations,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “When firms fail to provide us with accurate or complete trade data, it risks compromising our ability to detect and investigate securities law violations.”
According to the SEC’s order, the SEC staff sent electronic blue sheet requests to Scottrade in December 2011 in connection with an investigation the agency was conducting into suspicious trades made in a Scottrade online brokerage account that was the apparent victim of account intrusion. After receiving the blue sheet information, SEC staff discovered that Scottrade’s submission was incomplete as it failed to include data from a number of trades that resulted from unauthorized account intrusions. After the SEC staff contacted Scottrade questioning the data, the firm informed the agency that a computer coding error had resulted in the inadvertent omission of the trades.
The SEC’s order finds that Scottrade’s computer coding error resulted in the omission of trades from blue sheet responses it made to the SEC from March 2006 to April 2012. During that time, Scottrade failed to provide the required blue sheet information on 1,231 occasions. Scottrade has corrected the deficient code responsible for its inaccurate and incomplete blue sheet responses.
“Scottrade’s failure over six years to provide accurate and complete blue sheet trading data was egregious and violated its obligations under the securities laws,” said Daniel M. Hawke, director of the SEC’s Philadelphia Regional Office and chief of the Enforcement Division’s Market Abuse Unit. “Firms need to ensure that that they comply with their blue sheet production obligations or, as in Scottrade’s case, they will pay a heavy price if they fail to do so.”
Scottrade admits the facts underlying the charges made in the SEC’s order, which requires Scottrade to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-4(j), 17a-25, and 17a-4(f)(3)(v). In addition to the $2.5 million penalty, Scottrade has agreed to undertake such remedial measures as retaining an independent consultant to review its supervisory, compliance, and other policies and procedures designed to detect and prevent securities laws violations related to blue sheet submissions.
The SEC’s investigation was conducted by Lawrence Parrish and Daniel Koster of the Philadelphia Regional Office. The case was supervised by Kingdon Kase. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.