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SEC Censures and Fines Laidlaw for Reg BI Violations

SEC Censures and Fines Laidlaw for Reg BI Violations. Broker-dealer, brokerage, Financial Industry Regulatory Authority, financial services, FINRA, RIA, Securities and Exchange Commission

Laidlaw and Company, a United Kingdom corporation that has been registered as a broker- dealer since 2002, has settled charges brought by the Securities and Exchange Commission after they failed to supervise multiple advisors, some of which violated Reg BI’s obligations.

During the period of December 2016 through December 2018, Laidlaw failed reasonably to supervise, two registered representatives, who violated SEC rules with respect to nine customer accounts, in which they recommended a strategy of in-and-out trading, which they “had no reasonable basis to believe was suitable for any customers due to the high costs,” in the form of commissions and fees, associated with the trading.

The cost-to-equity ratios in these accounts ranged from 203% to 620% per account, according to the SEC. Similarly, the turnover rates for each account ranged from 60 to 276. During that period, these nine customer accounts lost a total of $739,545, and were charged a total of $610,192 in commissions and fees, with approximately $305,096 of that amount paid to Laidlaw and the remainder paid to reps.

The SEC says Laidlaw failed to develop and implement reasonable supervisory policies and procedures, in that the firm did not have a system to determine whether the direct supervisor of the registered representatives were carrying out their responsibility to supervise the two representatives to making suitable recommendations to the nine customers.

According to the offer of settlement, during the period of July 2020 through October 2021, Laidlaw violated SEC rules again when two separate registered representatives, Richard Michalski and Michael Murray, made a series of recommendations to six retail customers “without a reasonable basis” to believe that the series of recommended transactions were not excessive when taken together in light of the retail customer’s investment profile, and because the series of recommended transactions placed the financial interest of the firm ahead of the interest of the retail customer.

The cost-to-equity ranged from 20.38% to 33.14% per account, and the turnover rates ranged from 7.9 to 16.5. That trading generated approximately $445,860.30 in commissions and fees, with approximately $242,615.69 of that paid to Laidlaw, and the rest paid to the reps.

The SEC says Laidlaw violated the Reg. BI compliance obligation by failing to establish, maintain and enforce written policies and procedures designed to achieve compliance with the quantitative prong of Reg. BI’s care obligation.

The SEC ordered Laidlaw to pay disgorgement of $547,712.36, prejudgment interest of $51,844.22 and civil penalties of $223,328, for a total of $822,884.58, to the SEC for failing to supervise the reps. In addition, the firm was censured.

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