The SEC recently settled an enforcement action against a registered investment adviser that allegedly provided inaccurate daily trade files to four prime brokers, leading to violations of federal securities laws.  Resulting from operational issues that persisted for almost six years, over half a billion shares were listed inaccurately in prime brokers’ ledgers, and sales of millions of shares were reported inaccurately by prime brokers on blue sheets provided to the SEC and the Financial Industry Regulatory Authority.  In a settlement illustrating the importance of broker-dealer records to the hedge fund industry, the SEC clarified a core component of regulatory investigations as well as a substantial risk to the integrity of the investigative process.  Consequently, hedge fund managers may bear some responsibility for the accurate reporting and compliance obligations of their counterparties.  This article summarizes the background to the order; highlights the SEC’s findings; and discusses the lessons to be learned from the case.  For another recent SEC settlement regarding prime brokers, see “SEC Settlement Suggests that Prime Brokers Have Due Diligence and Disclosure Obligations with Respect to Manager-Provided Hedge Fund Valuations,” Hedge Fund Law Report, Vol. 8, No. 28 (Jul. 16, 2015).  For more on prime brokerage generally, see “Prime Brokerage Arrangements from the Hedge Fund Manager Perspective: Financing Structures; Trends in Services; Counterparty Risk; and Negotiating Agreements,” Hedge Fund Law Report, Vol. 6, No. 2 (Jan. 10, 2013).