Laidlaw to Pay $1.5 Million Fine: FINRA Alleges Firm Failed to Spot Market Manipulation
The securities lawyers of Kurta Law would like to speak with Laidlaw & Company (UK) investors who may have suffered losses as a result of market manipulation. Laidlaw has agreed to pay a $1.5 million fine following FINRA allegations that Laidlaw failed to take adequate steps to prevent market manipulation, including manipulation that may have artificially inflated certain stock prices. Regulators require brokerages to establish and enforce supervisory procedures designed to stop market manipulation. Firms should have a system in place to flag possible misconduct for further investigation. Laidlaw and Compliance Officer John Coolong allegedly also failed to supervise business-related text messages.
What are Manipulative Trading Practices?
SEC and FINRA rules prohibit the use of market manipulation to create a false impression regarding the demand for a certain stock. These are some of the most common types of market manipulation:
- Cross Trades allow a broker to avoid recording a transaction by executing a “buy” and “sell” order for the same security at the same time. The trades cancel each other out and allow the transactions to slip under the radar. This would allow an unscrupulous broker to conceal their own money-making agenda (especially if they have a financial interest in the cross-traded security). Brokers might legitimately execute matching buy and sell orders for their investors, but they must report these trades to a clearinghouse.
- “Marking the Close” involves buying or selling a trade near the end of the trading day to artificially affect the security’s closing price. This is meant to attract the attention of potential investors. Researchers have found that trading activity typically spikes around the end of the trading day on the last day of a fiscal quarter – activity that suggests widespread market manipulation.
- Matched Trades happen when a firm facilitates “buy” and “sell” transactions between customer accounts at the same time and for the same price. These trades do not benefit the investor but are meant to generate interest in the stock by increasing trading activity.
Laidlaw Allegedly Failed to Give Managers Tools to Spot Market Manipulation
According to Laidlaw’s written supervisory procedures (WSPs), Laidlaw’s branch managers should have performed daily reviews of the firm’s trades to identify any prohibited transactions. Unfortunately for investors, Laidlaw did not provide branch managers with adequate training on how to identify cross trades. Additionally, FINRA alleges that Laidlaw did not provide branch managers with electronic surveillance designed to identify cross trades. The firm also allegedly did not make it clear what branch managers should do if they spotted signs of market manipulation.
Company X – Helped By Market Manipulation?
The AWC refers to Laidlaw’s trades involving shares of a private company, referred to as Company X. These shares did not trade on any national exchange, and a significant portion of its trading activity came from Laidlaw investors. Despite this, Laidlaw did not detect multiple instances of alleged cross-trading in Company X shares. Laidlaw has worked with several companies that do not (or did not) trade on the public exchange, including Relmada Therapeutics and MEDL Holdings.
Laidlaw also allegedly failed to detect multiple instances of “marking the close,” when Laidlaw representatives placed Company X stock orders within the last ten minutes of the trading day, at prices at or above the previous day’s trading price.
Laidlaw Brokers: Unsupervised Communications with Investors
Firms are supposed to adhere to strict rules when they communicate with investors. Their communications should be available for review and maintained as part of the firm’s records. According to the AWC, Coolong and other Laidlaw personnel communicated with each other via text message using personal cell phones. Coolong and other representatives did not submit these communications for review or keep them for Laidlaw’s official records.
Investors: Recover Your Losses Through FINRA Arbitration
In addition to the $1.5 million fine for Laidlaw, FINRA has also fined John Coolong $15,000 and imposed a two-month suspension. If you believe you may have lost money due to market manipulation or a lack of supervision, you should contact the securities lawyers of Kurta Law for a free case evaluation. You may be able to recover your losses through FINRA arbitration. Call 212-658-1502 or email firstname.lastname@example.org.