What Evidence Is Necessary to Prove a Failure to Supervise Claim? - Transcript

Failure to supervise claims arise when brokerage firms or registered investment advisors neglect their duties to monitor the activities of their brokers, traders, advisors, or other representatives. These claims focus on shortcomings in oversight that allow financial professionals to engage in misconduct that harms investors. At Malecki Law, we help investors build strong failure to supervise cases, gathering evidence that demonstrates how the firm’s lack of oversight contributed to financial harm you suffered.

Financial institutions have a legal obligation to supervise their employees and ensure compliance with applicable securities regulations. Failure to fulfill this duty can result in significant losses for investors, particularly when fraudulent or unethical behavior goes unchecked.

To succeed in a failure to supervise claim, you must establish that the firm:

• Had a duty to supervise the individual or activity in question.
• Failed to implement or enforce adequate policies, procedures, or controls.
• Allowed misconduct to occur or continue due to their lack of oversight.

Evidence is critical in proving these elements and holding firms accountable for their failures.

Proving a failure to supervise claim requires a detailed examination of the firm’s policies, practices, and records. Key pieces of evidence include:

1. Supervisory and Compliance Reports:
   • Exception Reports: Documents that flag unusual or suspicious activity in accounts.
   • Review Notes: Records from supervisory or compliance professionals detailing their monitoring efforts.

Exception reports can show whether the firm identified and addressed potential misconduct. The absence of such reports may indicate that no meaningful supervision took place.

2. Branch Audits and Examinations:
   • Records of audits conducted at the branch where the misconduct occurred.
   • Documentation of how often accounts were reviewed and discussed with supervisors.

Frequent and thorough audits are essential for identifying and preventing misconduct. A lack of audits or incomplete documentation may demonstrate negligence.

3. Policies and Procedures:
   • The firm’s written policies on supervision and compliance.
   • Evidence of whether those policies were implemented and followed.

Firms are required to maintain robust policies designed to prevent misconduct. If those policies were ignored or inadequately enforced, it strengthens the case for failure to supervise.

4. Training Records:
   • Documentation of training provided to brokers and supervisors on compliance and ethical conduct.

A lack of training or insufficient guidance may indicate that the firm did not take its supervisory responsibilities seriously.

5. Absence of Oversight:
   • Missing documentation or gaps in records may highlight firm-wide failures in the firm’s oversight practices.

For example, if there are no records of compliance professionals reviewing an account, it suggests that misconduct could occur unchecked.

Failure to supervise claims often focus on systemic issues within the firm, rather than the actions of individual brokers. By demonstrating the firm’s lack of oversight or enforcement, you can establish a direct connection between their negligence and your financial losses.

At Malecki Law, we work closely with clients to collect and analyze the necessary evidence, ensuring that all relevant documentation is obtained and presented effectively.

Failure to supervise cases can be complex, as firms often have substantial resources to defend themselves. Common challenges include:

• Access to Evidence: Firms may resist providing records, requiring legal action to obtain them during the discovery process.
• Technical Complexity: Understanding and interpreting compliance records, exception reports, and other documentation often requires expert analysis.
• Proving Causation: You must demonstrate that the firm’s lack of supervision directly contributed to the misconduct and resulting losses.

Malecki Law has extensive experience navigating these challenges, leveraging legal and financial expertise to build compelling cases for our clients.

Failure to supervise claims hold brokerage firms accountable for neglecting their responsibilities and allowing misconduct to occur. If you believe a firm’s lack of oversight contributed to your financial losses, Malecki Law is here to help.

If you have questions for an experienced securities lawyer, reach out to Malecki Law to schedule a free consultation by calling 212-943-1233. We value your privacy and will ensure all communications remain confidential. Malecki Law is based in New York and represents clients across the world.

Transcript:

So interestingly in a failure to supervise what you really need to look for are those exception reports those notes of supervisory and compliance professionals reviewing the account and in a way the best failure to supervise cases involve a lack of that type of documentation nobody’s watching the store nobody’s reviewing the conduct of the broker or the trader or whomever engaged in the wrongdoing you know what branch Audits and examinations occurred how often was the book discussed with the supervisor or the compliance professionals what policies procedures and training do they have to ensure that the type of conduct that occurred doesn’t happen and so you’re looking for policies and maybe the absence of following those policies and the absence of the reports necessary to find the wrongful conduct.