SEC charges Laidlaw and Company (UK) with violations of Regulation Best Interest
The Securities and Exchange Commission (SEC) today announced settled charges against Laidlaw and Company (UK) Ltd., a registered broker-dealer, and two of its registered representatives, Richard Michalski and Michael Murray, for recommending frequent in-and-out trades that placed the broker’s interest in generating commissions and fees ahead of the customers’ interest in making a profit.
According to the SEC’s orders, from July 2020 through October 2021, Laidlaw, Michalski and Murray made a series of recommendations to retail customers without a reasonable basis to believe that the recommended transactions were not excessive and were in their customers’ best interests when taken together in light of the customers’ investment profiles, in violation of Regulation Best Interest.
Laidlaw, Michalski and Murray failed to consider the impact of the costs generated by the frequency of the trading, and the level of costs associated with the trading meant that the customers in question needed to achieve high returns in order to break even.
Laidlaw also failed to maintain and enforce policies designed to address and prevent violations of Regulation Best Interest, with procedures that did not provide sufficient guidance to supervisors and no method of ensuring that supervisors were taking actions to remedy violative conduct.
In addition, the order against Laidlaw finds that, from December 2016 through December 2018, Laidlaw failed reasonably to supervise two additional registered representatives, who violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder with respect to 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 SEC’s order also finds that Laidlaw willfully violated Regulation Best Interest, Exchange Act Rule 15l-1(a)(1), as well as the Regulation’s Care Obligation (15l-1(a)(2)(ii)(C)) and Compliance Obligation (Rule 15l-1(a)(2)(iv)). Without admitting or denying the findings, Laidlaw agreed to cease and desist from future violations of these provisions, was censured; and agreed to pay $547,712.36 in disgorgement, $51,844.22 in prejudgment interest, and a civil monetary penalty of $223,328.
The SEC’s order against Michalski and Murray finds that they willfully violated Regulation Best Interest, Exchange Act Rule 15l-1(a)(1), as well as the Regulation’s Care Obligation (15l-1(a)(2)(ii)(C)).
Without admitting or denying the findings, Michalski and Murray each agreed to cease and desist from future violations of these provisions and were censured.
Michalski further agreed to pay disgorgement of $88,506, prejudgment interest of $4,260.55, and a civil monetary penalty of $44,253; and agreed to be suspended from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of six months.
Murray further agreed to pay disgorgement of $24,414.17, prejudgment interest of $1,143.91, and a civil monetary penalty of $20,000.