Failure to Supervise

Supervision is a critical responsibility of brokerage firms and investment advisory entities to ensure compliance with securities laws and regulations. When firms fail to uphold their supervisory duties, investors may suffer significant financial harm. The New York-based securities lawyers at Malecki Law are strong advocates for investor rights and have extensive experience representing clients in cases involving a failure to supervise brokers and other financial professionals.

A brokerage firm fails to supervise when it neglects to enforce or implement reasonable procedures to oversee the actions of its brokers and employees. This failure may arise in several ways, including:

• Neglecting Red Flags: Ignoring warning signs of misconduct, such as unusual trading patterns or excessive customer complaints.
• Inadequate Policies: Failing to establish, document, or maintain adequate supervisory procedures.
• Poor Implementation: Having policies in place but not enforcing them effectively.
• Lack of Training: Failing to provide brokers with proper training on compliance and ethical standards.

When firms fail in their supervisory obligations, they can be held liable for the damages resulting from their employees’ misconduct.

Brokerage firms are subject to stringent rules and regulations regarding supervision, including:

• FINRA Rule 3110: Requires firms to establish and maintain a supervisory system that ensures compliance with applicable securities laws and regulations.
• FINRA Rule 3120: Mandates that firms test and verify the adequacy of their supervisory systems annually.
• SEC Regulations: The Securities and Exchange Commission (SEC) imposes additional oversight and record keeping obligations under the Securities Exchange Act of 1934.
• State Laws: Individual states may impose supplementary requirements for supervision.

These rules aim to protect investors by ensuring that firms monitor their brokers’ activities and proactively strive to prevent violations of securities laws.

Heightened supervision is a specific level of oversight imposed on brokers or advisors who have a history of misconduct or present a higher risk of regulatory violations. Brokerage firms may implement heightened supervision in scenarios such as:

• Past Disciplinary Actions: Brokers with prior regulatory sanctions or compliance issues.
• Increased Customer Complaints: Brokers with multiple complaints or arbitration filings.
• New Hires: Individuals transitioning from firms with a history of compliance deficiencies.

Heightened supervision plans typically include additional monitoring, regular audits, and more restrictive oversight of the broker’s activities. Failing to implement or enforce such measures can harm investors and expose the firm to liability.

Indicators of a failure to supervise may include:

• Repeated Misconduct: Your broker engages in unauthorized trading, churning, or recommending unsuitable investments.
• Lack of Communication: Your broker avoids providing clear answers about your investments or account activity.
• Inconsistent Account Activity: Unexplained withdrawals, excessive trades, or account statements that do not align with your investment objectives.
• Multiple Complaints: Evidence of other customers filing complaints against the same broker.

A thorough review of your account statements, correspondence, and firm policies can help determine if supervision lapses occurred. Malecki Law’s securities fraud attorneys are experienced in investigating these claims and can guide you through the process.

If you suspect your brokerage firm failed to supervise your broker, consider the following steps:

1. Gather Evidence: Collect all relevant documentation, including agreements, account statements, emails, and any communications with your broker.
2. Consult an Attorney: Contact Malecki Law for a free consultation to evaluate your case. Our attorneys have the expertise to determine whether the firm’s failure to supervise caused your financial losses.
3. File a Complaint: Your attorney can help you file a complaint with FINRA or the SEC and pursue arbitration or litigation to recover your damages.
4. Seek Compensation: If supervision failures led to financial losses, you may be entitled to compensation for your damages.

Malecki Law is dedicated to holding brokerage firms accountable for failing to supervise their employees and operations. Our skilled securities attorneys have successfully represented clients in cases involving unauthorized trading, fraud, and other misconduct resulting from supervisory lapses. Contact Malecki Law today at (212) 943-1233 or email jenice@maleckilaw.com to schedule a free consultation. We are here to protect your rights and help you recover your losses.