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FINRA Fines Two Laidlaw Brokers for Alleged Reg BI Violations

Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author
February 22, 2023 at 9:17pm

Two brokers from Laidlaw & Company (UK) LTD recently faced regulatory actions following alleged violations of Regulation Best Interest (Reg BI). Hopefully, this action indicates that regulators are finally cracking down on brokers who do not put their investors’ best interests first. In the case of Laidlaw brokers Todd Cirella and Edward Short, FINRA alleges that they excessively traded in investor accounts. These trades allegedly resulted in losses for the investors and significant commissions for the brokers.

FINRA has laid the groundwork for greater enforcement of Reg BI in 2023, as indicated by their Risk Monitoring Report. Reg BI went into effect in 2020, and brokerage firms have had two years to ensure that their brokers’ trading practices comply with the rule and do not place their brokerage firms’ interests ahead of their customers.

Laidlaw Brokers Todd Cirella and Edward Short Face Reg BI Actions

According to an Acceptance, Waiver, and Consent agreement (AWC), Todd Cirella engaged in excessive trading that resulted in $27,566 in commissions for himself and $12,000 in losses for his investor. Cirella has two earlier customer disputes on his BrokerCheck record alleging he executed excessive numbers of trades, accessed on February 8, 2023.

The Reg BI “Duty of Care” states that the broker has a duty to only execute investment strategies that fit the investor’s goals. Excessive trading puts the financial interests of the broker ahead of the investor.

As a result of FINRA’s allegations, Todd Cirella consented to a $5,000 fine and a restitution payment of $27,566 plus interest. He also consented to a $5,000 fine and a three-month suspension.

Edward Short entered into an Acceptance, Waiver, and Consent agreement (AWC) in which he consented to the findings that he executed excessive trades, resulting in $185,000 in trading losses as well as $116,859 in commissions for the broker. This trading pattern allegedly resulted in a cost-to-equity ratio of 76.53%, meaning the account would have to grow by 76.53% to break even.

As a result of these findings, Edward Short consented to a seven-month suspension, a $5,000 fine, and a restitution payment of $116,859.

Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.

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Laidlaw & Company (UK) LTD Regulatory Action Record

Both brokers named in these Reg BI regulatory actions are registered with Laidlaw. Laidlaw has its own history of regulatory actions – the firm has ten disclosures on its detailed Brokercheck record. These disclosures are regulatory actions that allege the brokerage firm violated securities rules and regulations.

Reuters also included Laidlaw & Company on a list of brokerage firms that hire a notably high number of brokers with previous customer disputes and regulatory actions on their records.

Alleged Excessive Trading

In a regulatory action dated January 23, 2023, Laidlaw consented to a monetary fine of $200,000 from the State of Connecticut following allegations that the brokerage firm engaged in “dishonest or unethical business practices.” These unethical business practices included trading that was “excessive in size or frequency in view of the customer’s financial situation.” Connecticut also alleged that the firm sold unregistered securities.

Market Manipulation Allegations

On July 15, 2021, Laidlaw consented to FINRA findings that it failed to provide supervisory procedures designed to prohibit market manipulation. Market manipulation could include marking the close–a strategy meant to artificially inflate share prices. Laidlaw consented to a fine of $1.5 million.

Alleged Failure to Supervise Exchange-Traded Funds

Laidlaw also has a regulatory action on its record concerning ETFs. In a regulatory action dated May 1, 2018, FINRA found that Laidlaw did not adequately supervise their brokers’ recommendations of leveraged and inverse exchange-traded funds. These types of ETFs are complicated investments and are only suitable for investors who have high risk tolerances.

  • Inverse ETFs are designed to generate a profit from losses to the underlying shares.
  • Leveraged Inverse ETFs (also known as non-traditional ETFs or NT-ETFs) attempt to attain higher yields with borrowed money. If the strategy does not pan out, the losses for investors are amplified.

The firm consented to a fine of $25,000.

About Regulation Best Interest

Reg BI expanded on the requirements for investment recommendations put forth in FINRA Rule 2111.

There are four main components of Reg BI:

  1. Disclosure: Brokerage Firms must disclose any conflicts of interest. For instance, brokers must disclose if they are recommending shares of a company in which they have a financial interest. Brokerage firms must also eliminate any incentives – like sales quotas and bonuses – associated with the sale of a particular security or type of security.
  2. Duty of Care: Brokerage firms and their associated persons – including brokers – must have a reasonable basis to believe an investment suits the financial needs of their customers. They must also consider any alternative products that may offer similar benefits at a lower cost to the investor.
  3. Conflict of Interest: Firms have a duty to eliminate or mitigate any conflicts of interest.
  4. Compliance: Brokerage firms must establish supervisory systems to achieve compliance with Reg BI.

 

What Should I Do If I Lost Money at Laidlaw?

Investors who believe they may have lost money with Laidlaw & Company (UK) LTD should contact a securities attorney. Our stock fraud attorneys will review your case for free and determine if you have a case for FINRA arbitration. Call (877) 600–0098 or email info@kurtalawfirm.com.