BlueCrest Capital Management Limited, a United Kingdom-based investment adviser, agreed last week to pay $170 million to settle charges brought by the SEC in connection with BlueCrest’s trading. The SEC found that BlueCrest moved high-performing traders from a client fund to a proprietary fund that traded personal capital of BlueCrest personnel. BlueCrest replaced the traders with an under-performing computer algorithm. The SEC found that BlueCrest’s disclosures were inadequate and that BlueCrest made misstatements and omissions about the traders and conflicts of interest. As stated in the SEC’s order, BlueCrest violated anti-fraud provisions of the Securities Act, Sections 17(a)(2),(3), along with the Advisers Act, Sections 206(2),(4).
In our practice, we find that investors and retirees sometimes do not understand when a computer is making some or all of the trading decisions in their accounts. This type of trading is sometimes called “formulaic trading.” It is often described using the word “algorithm.” Many investors think that because the investor meets or speaks with a representative or adviser that this person is actually making the trading recommendations and decisions. Sometimes that is true, and sometimes it is not.