Overview
Laidlaw & Company, a U.K.-based independent investment banking and securities brokerage entered into a Letter of Acceptance, Waiver, and Consent (AWC) with FINRA on July 15, 2021. Also, party to the AWC was Laidlaw’s Chief Compliance Officer John Coolong. By entering into the AWS, Laidlaw, and Coolong ended a long-running investigation by neither admitting or denying the alleged rule violations, by agreeing to a censure and paying a $1.5 million dollar fine. The time period over which the violations occurred was from January to September of 2015. A copy of the WAS can be found here.
John Coolong, Laidlaw’s Chief Compliance Officer was also fined $15,000.00 and suspended from acting in the capacity of a principal for any FINRA member firm for a period of two months.
The alleged Rule violations related to document retention requirements and trade monitoring capabilities. The punishment is in part of function of the firm’s history.
Background
Laidlaw is alleged to have violate FINRA Rules 3110 and Rule 4511(amongst others) in that;
Laidlaw failed to establish, maintain, and enforce a supervisory system reasonably designed to comply with applicable securities laws and rules.
- Laidlaw’s supervisory system was not reasonably designed to achieve compliance with federal securities laws and FINRA rules prohibiting market manipulation. While the firm did have written supervisory procedures prohibiting engaging in manipulative activity the AWS cites Laidlaw’s compliance system ineffective because training was inadequate, escalation procedures were not provided to staff and no tools were provided to detect manipulative activity.
- Laidlaw failed to detect red flags of potential market manipulation. “Laidlaw did not detect—and, therefore, did not review or investigate—multiple occasions when Laidlaw representatives effected cross trades in Company X shares across Laidlaw customers’ accounts.”
Laidlaw and Coolong were also alleged to have failed to preserve business-related electronic communications. It is this violation where Coolong is specifically mentioned. Per an excerpt from the AWS:
“During the relevant period, Laidlaw’s WSPs provided that electronic business communications could only be accessed and transmitted through firm-sponsored systems. However, during the relevant period, Laidlaw personnel, including Coolong, routinely communicated with each other and with customers regarding firm business by text message using their personal mobile phones. Coolong was aware that individuals he supervised also engaged in this practice. Laidlaw personnel, including Coolong and the individuals he supervised, did not send these text messages to their supervisors or the firm’s compliance department to be reviewed and retained, and the firm did not otherwise retain these business-related electronic communications”
So, there you have it. The most senior compliance person with accountability for the implementation of those written supervisory procedures participating in firm activity outside of the control infrastructure.
The AWC outlines C oolong’s FINRA registration history:
- Coolong entered the securities industry in May 2011,
- Coolong became registered as a Finance and Operations Principal through an association with Laidlaw inn October of 2011,
- Coolong registers as an Operations Professional in December 2011,
- Coolong obtains a General Securities Representative license in December 2012 and a General Securities Principal in February 2013, and
- Coolong becomes a Compliance Officer in October 2018.
It is also important to note Laidlaw’s history with FINRA. On two previous occasions first in 2009 and then again in 2012 Laidlaw was cited for failure to retain emails. In both circumstances the firm was fined $65,000.00.
Conclusion
In my view, this punishment is of reflective of three compliance themes. First, repeated violations of the same rule or regulation will invariably lead to progressively harsher outcomes. Second, do not write down on paper what you will not do in practice. Third, read the room. When taking a senior control position, it would behoove you to review representations made to regulators in the past and see if those representations match what is happening on the ground.
Also, as a senior control person you should not partake in activities that you prohibit.
