Broker Admits Violations of Securities Laws to Settle with SEC
Controls and records are often critical to the functioning of a company. Broker-dealers, as regulated entities, are required to maintain certain systems and records to aid in fulfilling their obligations. One requirement is to effectively respond to a Commission request for electronic “blue sheet” information. Blue sheets – originally forms on blue paper – collect a variety of data that aids Commission investigations. Now the data is collected in EBS format. The failure of broker-dealers to properly respond to requests for blue sheet information can have a significant impact on the ability of the agency to fulfill its statutory duties. The failure of Cantor Fitzgerald & Co. to properly respond to these requests resulted in a settled proceeding based on admissions that the firm violated the Exchange Act. In the Matter of Cantor Fitzgerald & Co., Adm. Proc. File No. 3-19734 (April 6, 2020).
Cantor has been a registered broker-dealer for decades. At times the firm has also been a registered investment adviser.
This action focuses on a six-year time period beginning in early 2014 and continuing through mid-September 2019. During that period the firm repeatedly received requests for electronic blue sheet information from the Commission. Specifically, the firm submitted 14,868 EBS to the agency concerning trade data for 34,884,409 transactions. Each of the submissions was deficient. The submissions contained inaccurate or missing fields relating to firm or customer identifying information such as name and address fields, contra party identifiers, registered representative numbers and opposing broker numbers. For example, the broker submitted incorrect name and address fields for 99% of the transactions. In submitting contra party information 87% of the information was incorrect. And, about 86% of the information regarding registered representatives was incorrect.
The submissions also contained inaccurate or missing data in EBS fields relating to information such as average price account, exchange codes and order execution time. For example, the firm reported almost 26 million securities transactions or 74% where the average price account data field was left blank. Cantor misreported about 73% of the exchange code identifiers.
The broker-dealer failed to detect the errors, at least in part, because it did not have a reasonable process to verify that all of the fields required to be populated included accurate values and information. Yet the firm had a fundamental obligation to submit accurate and complete blue sheet data since it is critical to many of the Commissions operations and duties. Accordingly, Section 17 of the Exchange Act imposes certain record keeping requirements on broker-dealers. Cantor, according to the Order, failed to comply with its obligations.
Cantor undertook remedial efforts focused on the issues raised here. It retained a regulatory and technology consultant to review its EBS reporting process and aid in the identification and correction of deficiencies. Cantor is also revising its supervisory procedures.
To resolve the proceedings Cantor admitted that the facts set forth in the Order and its conduct violated the federal securities laws. The firm consented to the entry of a cease and desist order based on the Section cited above and the related rules and to the entry of a censures. Cantor will also pay a penalty of $3.2 million.