Failure to Supervise

A failure to supervise occurs when a firm fails to adequately supervise its employees’ activities and even the firm’s operations. A failure to supervise in the brokerage firm context occurs when a firm’s senior personnel fail to properly review and monitor the brokers' work. If you notice all your investments behave differently than you were told, your brokerage firm may have failed to supervise your broker. A New York FINRA failure to supervise law firm like Malecki Law can review the circumstances around your portfolio, brokerage firm, broker, and investments at no cost. FINRA has implemented three supervision rules that brokerage firms must follow, FINRA Rules 3110, 3120, and 3130.

Under FINRA Rule 3110, your brokerage firm must have adequate written supervisory procedures (WSPs) in place, to properly supervise associated persons, such as your broker. Under FINRA Rule 3120, your brokerage firm must have a system of supervisory control policies and procedures (SCPs) in place to test its supervisory procedures. Under FINRA Rule 3130, your brokerage firm must provide key information to FINRA regarding its supervisory procedures and its compliance with relevant securities rules and laws.

Moreover, if an associated person has a history of misconduct, your brokerage firm should place them under heightened supervision. If your broker had a history of misconduct, and your firm failed to place them under heightened supervision, you may have a claim. A New York FINRA failure to supervise attorney at Malecki Law can evaluate the situation in a free consultation. If the firm fails to evaluate the adequacy of this heightened supervision, it can rise to a failure to supervise as well.

Failure to supervise claims typically arise when a broker engaged in misconduct, and the firm was either aware of the red flags and failed to prevent the misconduct or its supervisory procedures failed to detect and prevent the misconduct. Examples of misconduct a broker might engage in are as follows: unsuitability, Ponzi schemes, selling away, and forgery. If it seems as though your broker engaged in one of the aforementioned examples of misconduct, it is possible that your brokerage firm failed to supervise your broker. A FINRA failure to supervise lawyer in New York at Malecki Law knows the relevant rules. By way of example, a failure to supervise claim against a brokerage firm may arise if its broker physically conducted a Ponzi scheme out of the firm’s office. Another instance of failure to supervise may occur if a broker continuously forged their clients’ signatures to execute unauthorized trades. In these scenarios, the brokerage firm should have been aware, or made aware by adequate supervisory procedures, of the red flags to prevent investors from being financially harmed.

Regulators hold firms accountable for misconduct related to failures to supervise. For example, the SEC investigated and charged Morgan Stanley Smith Barney LLC (MSSB) for failure to monitor and safeguard its devices and customer information. If you notice any signs of broker misconduct that your firm disregarded or failed to prevent, you may have a failure to supervise claim. Contacting a New York FINRA law failure to supervise law firm like Malecki Law, will help you evaluate your case. At no cost, Malecki Law will help determine whether you have a viable failure to supervise claim. MSSB failed to monitor a moving company it hired to dispose of devices containing sensitive customer information. The SEC found that the moving company had in effect sold the customer information to a third party. As a result, about fifteen million customers of MSSB had their information exposed. As a customer of a firm, you entrust financial professionals with your personal information and money, among other things. Thus, MSSB had broken the trust of many customers. Had the firm properly supervised the moving company it hired, millions of the customers’ personal information would not have been sold for profit, ending up in the wrong hands.