Colorado Investment Loss Recovery Lawyers

The Colorado Division of Securities announced its top Investment Adviser Examination Priorities for 2022, reflecting areas that the state wishes to prioritize investor protection and to safeguard against industry risks. Similar to last year’s 2021 priorities, the number one area of focus for the regulator is firm supervision, which request investment firms “to have written procedures to supervise the activities of all representatives.” The broker negligence law firm of Malecki Law and its team of investment loss recovery lawyers have recovered tens of millions of dollars for investors who have lost money in the financial markets due to fraud (e.g., Ponzi schemes, account churning), investment suitability, or negligence, all typically resulting from inadequate oversight and supervision of the representative or the office he or she is working out of. Not surprisingly, many of the worst supervisory failures occur at remote branch offices located away from the main headquarters, where misconduct can be hidden from view more easily.

Failed supervision is also a key enabling issue in many Ponzi cases, where it is discovered after-the-fact that some trusted financial professional working for the firm had been, in fact, selling illegitimate, fake investments to customers away from their firm accounts. While this usually catches everyone by surprise, especially the investor, financial firms are still typically held liable for their failure to detect and prevent these scenarios in the first place, even when the firm is unaware that it has been going on. As just one of many examples, FINRA fined Merrill Lynch $1,000,000 in connection with a regulatory action for failing to catch a Ponzi scheme being run out of its San Antonio, Texas branch office. Significantly, this fine was levied against Merrill Lynch in addition to, and even after, the firm agreed to fully reimburse the victims, even where the victims did not have a brokerage account with the firm. See FINRA Press Release and Disc. Proc. 20080139905 Order Accepting Offer of Settlement (October 2011).;

As our investment loss recovery law firm has successfully argued at trial many times over, financial firms are not only required to have policies and procedures in place to monitor their financial advisors and the accounts they manage, but they must also see to it that those procedures are enforced. The Securities and Exchange Commission (SEC) made this clear in Staff Legal Bulletin No. 17, which focused specifically on remote office supervision, stating that such policies must be “clearly articulated and vigorously enforced …with sufficient resources to implement them.” (Emphasis added.) The SEC’s Bulletin further highlights the importance of inspections for these remote offices as a “vital component of a supervisory system,” stating unequivocally that the SEC does not consider a firm’s supervisory duty to be fulfilled unless it has conducted an inspection in those remote offices:

“The Commission has determined that broker-dealers that conduct business through remote offices have not adequately discharged their supervisory obligations where there are no inspections of those offices Effective inspections can detect misconduct in its infancy, deter future wrongdoing, and prevent or mitigate investor harm. An effective supervisory system employs a combination of onsite and offsite monitoring, including the use of unannounced inspections and mechanisms for verifying that deficiencies are corrected.”

There is no question that unannounced, in-person inspections of remote offices are critical to any effective system of firm supervision. Malecki Law is national broker fraud law firm whose investment loss recovery lawyers have successfully recovered tens of millions of dollars for investors victimized by Ponzi schemes that were effectively aided and abetted by a firm’s lax supervision of a remote office. Unsupervised remote offices are almost always the culprit, where we have seen Ponzi schemes flourish for years because firms go nearly a decade between unannounced office inspections. It is typical that only afterwards, once the Ponzi scheme unravels or runs out of money or new investors, that evidence comes to light within the remote office (e.g., the discovery of bank records, communications with investors, brochures promising high yields) that would have tipped off the scheme much earlier, if only the firm had made an unannounced visit, preventing the wrongdoer from hiding documents and other signs of the scheme before the audit was scheduled to begin. If you are a Colorado resident who has lost money in a Ponzi scheme or believe that your account losses are due to failed supervision, you may schedule a free initial consultation with Malecki Law – call us directly (212) 943-1233, or email jenice@maleckilaw.com.

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