Brokerage Firms Cannot Escape Responsibility to Supervise its Brokers by
Claiming that the Brokers "are only Independent Contractors."
Meyer Wilson, along with the Pittsburgh firm of Rosen Louik & Perry,
P.C., are currently representing a group of clients who are victims of
broker Patricia Miller's alleged
Ponzi scheme and we continue to receive calls from more victims. Based on what our
investigation has uncovered, within days after Patricia Miller's affiliation
was terminated earlier this month as a registered representative with
Investor Capital Corp., the brokerage firm rushed to distance the firm
from Ms. Miller's investment activities. Investors Capital was reportedly
telling Ms. Miller's clients that they are not responsible for investor
losses because Ms. Miller was never officially an employee of the brokerage
firm but was only an "independent contractor registered representative"
affiliated with Investors Capital.
In handling nearly 1,000 cases of investment fraud over the past fifteen
years, we've seen this playbook by brokerage firms many times. As
soon as a brokerage firm discovers that one of their brokers has been
engaging in an investment fraud right under their noses, they often try
to convince the clients that the firm has no duty to protect the broker's
customers since the broker was never an "employee." They are
flat wrong. In our experience, brokerage firms say those things so that
the customers give up hope of recovering their money and never consult
with an experienced securities arbitration attorney to learn what rights
The rules and regulations of the securities industry make it clear that
the independent contractor status for tax or other purposes has no bearing
on a brokerage firm's obligations to supervise its registered representatives
(ie., brokers). The regulators summed it up very clearly back in 1983:
""As far as the [regulators are] concerned, the 'Independent
Contractor' category does not exist."
The securities regulators have addressed the supervision of independent
contractors as follows:
Irrespective of an individual's location or compensation arrangements,
all associated persons are considered to be employees of the firm with
which they are registered for purposes of compliance with NASD rules governing
the conduct of registered persons and the supervisory responsibilities
of the member. The fact that an associated person conducts business at
a separate location or is compensated as an independent contractor does
not alter the obligations of the individual and the firm to comply fully
with all applicable regulatory requirements. See, NASD Notice to Members
86-65, "Compliance with the NASD Rules of Fair Practice in the Employment
and Supervision of Off-Site Personnel,"
Again in 1988, the regulators reminded brokerage firms:
[F]irms must supervise all of their associated persons - regardless of
location, compensation or employment arrangement, or registration status
-in accordance with the NASD By-Laws and Rules. The fact that an associated
person conducts business at a separate location or is compensated as an
independent contractor does not alter the obligations of the individual
and the firm to comply fully with all applicable regulatory requirements.
If you were a client of former stockbroker Pat Miller and have questions
about your legal rights, call attorney David Meyer toll-free at (888)
390-6491 for a complimentary case evaluation and for additional details
about the ongoing investigation. You may also contact his co-counsel,
Pittsburgh attorney Jon R. Perry with the law firm of Rosen Louik &
Perry, P.C. at 412-281-4200.