What Types of Damages Are Typically Sought in a Failure to Supervise Case? - Transcription

In a failure to supervise case, investors seek to hold brokerage firms or registered investment advisors accountable for their lack of oversight that allowed the wrongful conduct to occur. These cases correctly recognize that proper supervision could have prevented the misconduct and the resulting losses. At Malecki Law, we help investors recover the damages they are entitled to by pursuing claims against firms that failed to uphold their supervisory responsibilities.

Failure to supervise cases arise when a firm fails to adequately monitor its brokers, advisors, or other representatives, allowing misconduct such as fraud, unauthorized trading, or unsuitable recommendations to occur. Firms are required to:

• Approve all transactions.
• Review and respond to exception reports that flag irregularities or red flags.
• Implement and enforce policies and procedures to prevent misconduct.

When a firm fails in these duties, it may be held responsible for the damages caused by the underlying wrongful conduct.

Investors harmed by a failure to supervise may pursue several types of damages, depending on the circumstances of the case:

1. Net Out-of-Pocket Damages:
   • These damages reimburse investors for the direct financial losses they incurred due to the misconduct.
   • For example, if an investor’s account was depleted through unauthorized or unsuitable trades, net out-of-pocket damages would cover the amount lost.
2. Well-Managed Account Damages:
   • This measure of damages calculates how the account should have performed had it been properly managed.
   • It compares the actual performance of the account with a benchmark that reflects a well-managed investment strategy suitable for the investor’s profile.
3. Interest and Carrying Costs:
   • Investors may recover interest on their losses, as well as any additional costs associated with maintaining or liquidating their investments.
4. Attorneys’ Fees and Costs:
   • In some cases, statutes or agreements allow investors to recover legal fees and costs incurred in pursuing their claims.
   • These provisions can make a significant difference in cases where the damages are relatively modest compared to the legal expenses involved.
5. Punitive Damages:
   • While less common, punitive damages may be awarded in cases involving egregious misconduct or gross negligence.
   • These damages are intended to punish the firm and deter similar behavior in the future.

Calculating damages in failure to supervise cases often requires detailed analysis of account activity, market conditions, and the investor’s financial profile. Factors considered include:

• Whether the investment recommendations were in the investor’s best interest given various investor profile considerations, such as the investor’s financial goals, age, liquidity needs, and risk tolerance.
• The losses incurred as a direct result of the misconduct.
• The performance of the account compared to a well-managed benchmark.

At Malecki Law, we work with financial experts and forensic accountants to accurately calculate damages and present compelling evidence in support of our clients’ claims.

Brokerage firms and investment advisors have a legal obligation to supervise their employees and enforce policies designed to prevent misconduct. When they fail to meet this obligation, they share responsibility for the damages caused by their representatives’ actions.

For example:

• If a broker engages in unauthorized trading, the firm may be responsible for not identifying and stopping the activity through routine supervisory procedures.
• If investments are recommended that were against the investor’s best interest, the firm may be liable for failing to detect the red flags in exception reports or transaction reviews.

Firms have access to sophisticated tools and resources to monitor their representatives, and their failure to utilize these safeguards places the burden of losses on them.

As an investor, you rely on firms to provide oversight that protects their accounts from misconduct. When that trust is broken, the consequences can be financially and emotionally devastating. At Malecki Law, we are committed to helping investors recover the damages they deserve in failure to supervise cases. 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:

Supervise case what you’re saying is the underlying wrongful conduct should not have happened because if they had properly supervised then they would have stopped the conduct before it happened look brokerage firms and registered investment advisors have to approve every transaction they have to effectuate it they have all kinds of errors and omissions and reports that get uh circulated at the firm so exception reports are really crucial to determining red flags of wrongdoing and they have to really look at all those things to stop the issues and so if an issue occurs they’re fully responsible just as the person that may have perpetrated the wrongdoing for all of the damages you might suffer from net out of pocket damages to well-managed theories all the way through interest costs and possibly attorneys fees and maybe punitive damages if you’re lucky.