Financial and securities brokerage firms have a legal duty to supervise their brokers and their brokers' recommendations to clients to ensure compliance with and prevent violations of the rules of the security industry. When an individual broker is negligent or acts in an unlawful manner against the interests of the client and that client suffers damages as a result of such wrongdoing, the firm may be held liable for the investor's losses.
There are also instances in which a brokerage firm may be held liable for failure to supervise without the individual broker being held responsible for damages. Brokers are required to complete standardized training and pass exams administered by the FINRA. If it is found that a brokerage firm did not properly train a broker, did not ensure the broker obtained the necessary license, or furnished the broker with false information, the brokerage firm alone may be liable for damages caused by the broker's negligence or misconduct.
Failure to Supervise Claims
There are many scenarios in which you could have a failure to supervise claim against the brokerage firm. In many cases, the brokerage firm is solely responsible for financial losses.
Examples of failure to supervise claims include the following:
- The firm failed to properly train the broker.
- The firm did not confirm that the broker recommended and implemented a plan.
- The firm provided the broker with false information about an investment sold to you.
A lot of investigation is needed in this type of broker fraud claim, which is why you need to ensure that the attorney you choose has the necessary experience and background to build your case.
Compliance Required with These FINRA Rules
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.
- 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.
Contacting a Securities Fraud Attorney
Proving a failure to supervise claim requires a thorough investigation of the facts surrounding your claim and a diligent attention to detail. Fortunately, Meyer Wilson has spent decades of collective experience in one area: investment fraud law. Because our practice is devoted entirely to serving the victims of negligent and fraudulent stockbrokers, our skills are well-honed and perfectly suited to your case. We have the necessary resources and insight to aggressively investigate and pursue your case until it reaches a just conclusion. Our securities fraud attorneys won over $350 million for our clients because Meyer Wilson has the experience and skill to represent your interests effectively.