Laidlaw Reps and Firm agree to pay $1 Million for Allegedly Churning Client Accounts
According to the SEC on November 20, 2023, the agency settled charges with Laidlaw & Co and two of its reps for allegedly churning client accounts. The brokerage firm and two of its registered representatives reportedly agreed to pay the SEC a little more than $1 million for violating Regulation Best Interest (Reg BI).
The Securities and Exchange Commission reportedly charged Richard Michalski and Michael Murray, two Laidlaw & Co. brokers with recommending an investment strategy to six retail customers from July 2020 through October 2021 that resulted in excessive trading. According to the charges, the reps allegedly failed to comply with the Regulation Best Interest care obligation because the strategy did more to generate revenue for them than returns for the customer. They also reportedly failed to consider whether the strategy was in line with the customers’ investment objectives.
The SEC said that “the strategy involved 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.” The trading was also allegedly excessive for one customer in light of the customer’s investment profile. The SEC noted that “as to the other customers, the fact that their investment profiles reflected a higher tolerance for risk and/or active trading did not relieve respondents of their care obligation with respect to the recommendations they made.” See: Is your Broker Churning your Account? Churning Attorneys
Laidlaw will pay $822.884 in disgorgement and penalties. Michalski reportedly agreed to pay $137,289 in disgorgement, prejudgment interest and a civil penalty and Murray reportedly agreed to pay $40,558.
Reg BI – “Regulation Best Interest”
“Regulation Best Interest,” approved by the SEC in 2019, requires financial advisors to put clients’ interests before their own. Although the rule has been in effect since the beginning of 2020, REG BI enforcement actions are just coming in to play during the past year.
The Financial Industry Regulatory Authority (FINRA) reportedly also sanctioned two Laidlaw & Company brokers in January 2023, with the payment of more than $150,000 in restitution and fines after they were found to have violated the Reg BI rule. Acting in a client’s best interest would require a broker to disclose conflicts of interest and to take into account a client’s total portfolio and exposure to risk when making investment recommendations.
The SEC released a Risk Alert on January 30, 2023, highlighting Reg BI deficiencies found while examining brokerage firms, with intentions of helping the firms with better compliance.
Hiring a FINRA Attorney for Investment Loss Recovery
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