SEC Fines Two Brokers for Reg BI Violations

Murray has been associated with various broker-dealers since 2005, and with Laidlaw since October 2010. He currently holds Series 7 and 63 licenses.

Between July 2020 through October 2021, the two brokers recommended an investment strategy to certain retail customers that was not in their best interest, the order states.

“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 SEC said.

“With respect to one customer, the trading also was excessive in light of the customer’s investment profile. 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,” the SEC order states.

For instance, three of these retail customers indicated a “high” risk tolerance and an investment objective of “speculation” on their account opening documents, the order states.

“The accounts of these three retail customers had turnover rates ranging from 7.9 to 8.87 and cost-to-equity ratios ranging from 20.38% to 24.18% per account, requiring returns above that percentage in order to yield gains for the customer sufficient to cover the costs of the trading,” the order explains.

Notwithstanding the higher risk tolerance and speculative investment objectives of these retail customers, the recommended “in-and-out trading strategy” violated Reg BI because the strategy resulted in excessive trading that placed the brokers’ “financial or other interest … ahead of the interest of the retail customer,” according to the order.

The trading in those three accounts during the Reg BI period generated approximately $177,895 in commissions and fees, with approximately $98,693 of that paid to Laidlaw, $54,788 to Michalski and $24,414 to Murray.

“Two customers suffered losses, and one customer had gains, but the commissions were higher than the gains — that customer made $5,638.80 in net profits, but paid $81,830.46 in commissions and fees,” the SEC order said.