February 14, 2014 — The Securities and Exchange Commission (SEC) relies on “blue sheet” information from broker-dealers in its investigation of possible securities law violations. But the agency lacks the resources, and often the necessary cooperation from those in the securities industry, to ferret out every violation. This is where the financial fraud whistleblower program established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 comes into play. Tipsters who notify the SEC about securities law violations that harm investors may receive significant rewards from the government. Whistleblowers’ rewards may be as high as thirty percent of the amount the government recoups, provided the total recovery is over $1 million.
Six-Year-Long Coding Error Caused 1,231 Submissions of Flawed Blue Sheet Information
Broker-dealer Scottrade has been charged with failing to provide the SEC with “blue sheet” data about the firm’s trades and its customers. To resolve the charges, Scottrade, a St. Louis company, will pay a $2.5 million penalty and concede that it violated applicable recordkeeping laws.
What Is a “Blue Sheet” Violation of Federal Securities Laws?
Upon request, broker-dealers must provide the SEC with electronic “blue sheet” data that enables the agency to identify and analyze trades during investigations and examinations. Blue sheets disclose details of every equity or options trade that broker-dealers process. Decades ago, the SEC mailed paper forms that were blue in color and asked broker-dealers to complete the forms and mail them back. In the 1980s, the process became electronic, but the requested information is still known as blue sheet data. When broker-dealers fail to comply fully with the SEC’s request for data, the agency is hampered in its efforts to investigate securities violations.
In December 2011, the SEC requested that Scottrade provide blue sheet data concerning a Scottrade online brokerage account that appeared to have been hacked. In response, Scottrade submitted incomplete data concerning a number of trades made during unauthorized account intrusions. When questioned, Scottrade claimed that the omission was inadvertently caused by a computer coding error.
According to the SEC, Scottrade’s computer coding error lasted from March 2006 to April 2012. During that six-year period, Scottrade neglected to provide complete blue sheet data in 1,231 instances. For its failure to ensure compliance with its blue sheet production obligations, Scottrade will pay a $2.5 million penalty.
How to Blow the Whistle on Blue Sheet Data Violations
Broker-dealer insiders who uncover information about wrongdoing in the provision of blue sheet data to the SEC should first firm up their understanding of the Dodd-Frank whistleblower program. The SEC fraud lawyers at Waters & Kraus have what it takes to protect you and your financial interests when you blow the whistle on securities law violations. Contact us or phone our securities fraud lawyers at 855.784.0268 to discuss how we can help you.