If you have fallen prey to a rogue broker, or if you have been reeled into a Ponzi scheme, you may be able to sue the brokerage firm for the misdeeds of the individual broker. Although the individual broker may have been the one that defrauded you, the brokerage firm is required to have systems in place to supervise the actions of their individual brokers. If your broker turned out to be a scam artist, you may have a failure to supervise claim.
FINRA rules state that a brokerage firm must have reasonable systems and procedures in place to monitor employees and protect against investment fraud. Each firm must keep a written copy of its policies at each office that is designated an office of supervisory jurisdiction, and also must designate a supervisor. These FINRA rules require compliance with the following (as examples):
- Pre-Hire screening. This is essentially to check the agent's background. Has the agent changed firms often? Does he or she have a disciplinary history?
- Yearly review and inspection. Each year, the individual brokers with a firm should participate in a meeting to discuss their compliance with FINRA rules. In addition, each individual office should be inspected to detect and prevent violations that may lead to investment fraud.
- Monitoring communications of individual brokers. This covers both communications with existing customers, and communications with potential customers, such as advertising.
- Monitoring customer information and transactions. This is often monitored by a computer system that will alert a supervisor to suspicious activity.
- Training and licensing. A firm should monitor that its individual brokers are licensed to sell securities, and are current on required training.
If you've lost money due to broker misconduct, a failure to supervise claim may be the only way to attempt to recover your losses. If you believe you have a claim, or if you have questions about securities fraud, contact the securities arbitration attorneys with Meyer Wilson for a free case evaluation.