Wealth Manager Fined More Than $800,000 for Reg BI Violations
Of their advisers, 2 were also fined and 1 suspended for 6 months for account churning and excessive trading.
The Securities and Exchange Commission settled charges with Laidlaw and Co. and four of their advisers for violations of the Regulation Best Interest rule. The SEC found that the firm and its advisers processed a high volume of trades to justify charging clients excessively high fees.
Laidlaw & Co. Ltd., a London-based asset manager with offices in the U.S., allegedly processed a trade volume that did not correspond to the profile and interests of its clients. By placing its interest ahead of clients, the SEC concluded that the firm violated Reg BI. Specifically, from July 2020 to October 2021, Richard Michalski and Michael Murray, two registered advisers employed by Laidlaw, were penalized for excessive trading.
The SEC wrote in the order that a cost-to-equity ratio of 20% or greater or a turnover rate of 6 to 1 are both “thresholds courts have found to be indicative of excessive trading.” The clients of Michalski and Murray had cost-to-equity ratios of 20.38% to 33.14% and turnover rates of 7.9 to 16.5, according to the regulator. A cost-to-equity ratio is the rate of return needed to offset trading fees, and a turnover rate refers to the total value of purchases divided by the account’s average monthly balance.
The actions resulted in $261,000 in fees, exceeding the returns for the clients affected.
For these offenses, Michalski was given a six-month suspension from any affiliation with a broker or adviser and was ordered to pay $92,766.55 in compensation and a fine of $44,253 to the SEC. Murray will pay $25,558.08 in compensation and a fine of $20,000 to the SEC.
The SEC charged Laidlaw itself for failing to properly supervise Michalski and Murray, as well as two other, unnamed advisers.
The SEC also alleged that from December 2016 to December 2018, Laidlaw did not prevent a similar scheme from being carried out by two other advisers. Across nine accounts, the two advisers conducted excessive trading, which resulted in cost-to-equity ratios ranging from 203% to 620% and turnover ratios ranging from 60 to 276, the regulator charged.
According to the SEC, the accounts were flagged by Laidlaw’s monthly reporting system; five of each were flagged in 10 or more months as potentially being traded excessively. However, the SEC found that Laidlaw did not have policies for ensuring that supervisors followed up on these reports. Laidlaw had procedures that required supervisors to contact a customer to ask them about their account and investment strategy, but the SEC found that these policies were never implemented.
Laidlaw agreed to pay $599,556.58 in compensation and a civil fine of $223,328 to the SEC.
The firm did not respond to a request for comment.