Failure to Supervise Broker: Holding Brokerage Firms Accountable

When you’ve suffered a significant investment loss caused by a broker’s misconduct and your brokerage firm’s failure to supervise their brokers, it’s time to hire the reputable investment loss lawyers at Patil Law.

While even experienced investors sometimes take heavy hits in the market, there are instances where losses aren’t merely the result of normal market fluctuations, but rather the consequence of securities broker misconduct enabled by your broker-dealer’s failure to properly supervise their broker’s activities. Our comprehensive Broker-Dealer Supervision Requirements: Legal Bases for Claims guide explains the legal foundation for these cases.

Why Choose Patil Law for Your Failure to Supervise Broker
Case?

Patil Law’s founder, Chetan Patil, has over 15 years of extensive experience handling diverse, complex financial transactions and securities cases across the country. To date, the firm has recovered over $25 million on behalf of its clients who have suffered losses due to broker misconduct. Feel free to browse through the firm’s impeccable track record.

Chetan specializes in litigations, trials, arbitrations, and appeals of complex securities, Financial Industry Regulatory Authority (FINRA) cases, and financial and business disputes, with an emphasis on securities law, financial services, and financial regulatory matters.

Benefits of Working with Our Investment Loss Lawyers

Patil Law’s clients benefit from the depth and breadth of Chetan’s legal experience and judgment in broker misconduct cases. He has handled and overseen over a thousand litigation and arbitration cases nationwide in federal and state courts and arbitration forums.

As a testament to their deep care and commitment, Chetan and his team of legal experts travel extensively for their clients all around the country, pursuing cases against brokers and their supervising firms.

They have represented defrauded investors, family trusts, family offices, public and private companies of all kinds, including banks and other financial institutions, broker-dealers, registered investment advisors, advisory firms, and securities brokers who have been harmed by corporate malfeasance.

We operate on a contingency fee basis, which means we only get paid if we secure a favorable settlement or verdict for our clients. There are no upfront fees or costs to worry about when pursuing your broker misconduct claim. Call Patil Law now at (866) 825-7279 or send us a message through our secure and confidential online form. Our compassionate team of professionals is always on standby to provide urgent assistance.

Holding Your Brokerage Firm Accountable For ‘Failure to Supervise Broker’ Claims

Brokerage firms have a responsibility to oversee their employees and ensure that brokers are acting in the best interests of their clients. Unfortunately, some firms neglect this crucial duty, allowing rogue brokers to engage in misconduct unchecked, leaving investors vulnerable to financial ruin.

When broker misconduct occurs, you may be able to claim compensation not just from the individual broker’s actions, but also from the firm’s failure to properly supervise that broker.

Brokerage Firms’ Responsibility Under FINRA’s Rules

FINRA imposes an obligation on brokerage firms to “establish and maintain a system to supervise the activities of each registered representative, registered principal, and other associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations.”

This was formerly governed by the National Association of Securities Dealers (NASD) Rule 3010. However, FINRA Rules 3110 and 3170 have superseded this. For a detailed analysis of how these requirements create accountability, see our guide on Compliance System Failures: Identifying Systemic Supervision Problems.

FINRA Rule 3110 (Supervision)

Rule 3110 (a) replaced Rule 3010 in detailing the responsibilities of a brokerage firm regarding broker supervision. Essentially, the rule strengthens FINRA’s requirement for its member firms to establish and maintain a supervisory system to ensure compliance with securities laws, regulations, and FINRA rules

This supervisory system must include:

• Written procedures for monitoring broker activities
• The designation of appropriately registered principals with supervisory responsibilities over brokers
• The registration and designation of branch offices and offices of supervisory jurisdiction (OSJs)

Additionally, each registered broker must be assigned to a qualified supervisor who is responsible for overseeing their activities. The member firm must also make reasonable efforts to ensure that all supervisory personnel are competent to carry out their assigned responsibilities, either through experience or training.

FINRA further mandates that each registered broker and principal participate in an annual compliance interview or meeting to discuss relevant compliance matters. The lack of such supervision can lead back to the corporate structure’s liability. Learn more about these requirements in our detailed analysis of Branch Office Supervision Standards and Violations.

FINRA Rule 3170 (Taping Rule)

Another rule that your brokerage firm should follow, when applicable, is FINRA Rule 3170 (Tape Recording of Registered Persons by Certain Firms). This rule, commonly referred to as the “Taping Rule,” requires certain firms to install taping systems to record all telephone conversations between their registered brokers and existing and potential customers, review those recordings and file reports with FINRA.

The Taping Rule is designed to prevent fraudulent and improper practices in the sale or marketing of financial products and behavior that may otherwise cause customer harm.

As such, the rule applies to member firms with a significant number of registered brokers who previously worked for firms that have been expelled from FINRA membership or have had their registrations revoked for inappropriate sales practices. Firms that become subject to these requirements are called “taping firms.” This is just one example of the modern Technology and Surveillance Requirements for Modern Supervisory Systems that firms must implement.

Amendments and Supplementary Materials to FINRA’s Rules

It might be incredibly challenging for the average investor to stay up-to-date and fully understand the implications of updating and amending securities regulation. For example, FINRA has recently announced new supplementary materials to Rule 3110 (Supervision).

At Patil Law, we pride ourselves on our deep knowledge of the ever-evolving regulatory landscape and our ability to navigate complex legal matters with skill and compassion. Our menu of services specifically addresses failure to supervise broker cases with expertise.

We understand that dealing with stock market losses and potential broker misconduct can have the potential to derail your finances, which is why we’re here to provide the guidance and support you need without adding to your financial burden through our contingency fee structure.

Examples Of Failure To Supervise Broker Cases

The investment loss lawyers at Patil Law have extensive experience in handling a wide range of ‘failure to supervise broker’ cases involving brokerage firms. Our team has successfully represented clients in scenarios such as:

Lack Of Proper Training And Education

Brokerage firms have a responsibility to provide their brokers with adequate training and education to ensure they understand and comply with industry regulations and best practices. If a firm fails to properly train its brokers, leading to incidents of misconduct or non-compliance, the firm may be held liable for failure to supervise.

For example, if a broker recommends unsuitable investments or engages in unauthorized trading due to a lack of proper training, and the firm fails to provide the necessary education, the firm may face failure to supervise claims in addition to misconduct allegations.Ignoring Red Flags or Suspicious Activities

Ignoring Red Flags Or Suspicious Activities

Brokerage firms have computerized supervisory systems that generate exception reports to highlight potential issues, such as high turnover rates in client accounts. When management consistently disregards these reports and fails to investigate or take action, it can constitute a failure to supervise broker’s activities.

For instance, if a broker engages in excessive trading (churning) to generate commissions, and the compliance department fails to address the issue despite the presence of red flags, the firm may be liable for failure to supervise in addition to churning and unsuitability claims. Our comprehensive guide to Red Flags and Failure to Supervise Claims: Building a Compelling Case outlines exactly what evidence to look for in these situations.

Inadequate Product Suitability Oversight

Compliance personnel have the ability to analyze the products and securities recommended by financial advisors to their clients. If an advisor recommends the same product to nearly all their clients, regardless of their individual needs, age, investment objectives, and risk tolerance, it should raise concerns.

A diverse client base typically requires a variety of investment strategies and products, with proper consideration of each client’s tax situation. When a compliance department neglects to investigate and address such patterns, it can be a clear case of failure to supervise broker activities, particularly if the recommended product is later revealed to be fraudulent or causes significant losses to clients.

Many of these issues stem from poor hiring and retention practices. Learn more about how firms can be held liable in our guide to Hiring and Retention Liability: Claims Against Firms for Problematic Brokers.

Don’t wait to get your investment back from negligent brokerage firms. Contact Patil Law today to discuss your potential failure to supervise broker case.

Can A Lawyer Help Recover Your Investment Losses?

A skilled financial securities lawyer can help you take proactive steps to recoup your investment losses and hold those responsible accountable for their actions.

Watching your hard-earned investments disappear due to your brokerage firm’s carelessness and recklessness can be an emotionally devastating experience. Such a betrayal can leave you feeling helpless and unsure of where to turn.

You don’t have to face this difficult situation alone. At Patil Law, we can comprehensively discuss your legal options so you can make an informed and empowered decision.

Filing a Lawsuit Against Your Brokerage Firm

Recovering assets lost to investment fraud can be challenging, but it’s important to remember that there are legitimate avenues available to explore. While the road may be difficult, individuals who have fallen victim to financial fraud have the right to seek justice and recoup their losses.

One potential course of action is to file a civil lawsuit. This process involves engaging the services of experienced attorneys who specialize in handling financial fraud cases. These legal professionals can provide invaluable guidance and counsel, helping clients through the legal system and determining the most appropriate remedies based on the specific circumstances of their case.

It’s important to approach the decision to file a civil lawsuit with a clear understanding of the potential challenges involved. Legal proceedings can be time-consuming and costly, and even in cases where a judgment is awarded in favor of the plaintiff, collecting on that judgment may present additional hurdles.

FINRA Arbitration

Aside from filing a civil lawsuit against your brokerage firm, you may also choose to proceed with an arbitration claim or request mediation through the Financial Industry Regulatory Authority (FINRA).

The latter deals with a dispute involving the business activities of a brokerage firm or one of its brokers, and the parties seek monetary or other relief. Generally, to be considered for arbitration or mediation, the alleged act that gave rise to the claim must have taken place within the past six years.

However, if arbitrators see that an ongoing situation is causing the dispute, it can still be submitted. For instance, if a customer bought stock 10 years ago and there are claims of ongoing fraud from the time of purchase until six years before filing, it can still be accommodated.