Brokerage firms must supervise their brokers’ conduct and recommendations to clients.  The firm must ensure compliance with FINRA and security industry rules.  Where a broker breaks the law, or is negligent, and the investor suffers losses, the brokerage firm is liable.  

What is Failure to Supervise?

NYSE Rule 405(b) and FINRA Conduct Rule 3010 require brokerage firms to supervise their brokers and the accounts they handle.  Further, FINRA requires brokerage firms to create compliance systems to actively monitor their brokers’ activities.

The Failure to Supervise claim is based the common-law doctrine of respondeat superior.  This doctrine makes the brokerage firm responsible for its employee’s wrongful acts or negligence.

Key supervising duties require the brokerage firm to maintain:

  1. Familiarity with the broker’s clients and accounts;
  2. Daily review of the broker’s order tickets;
  3. Monthly supervision of active accounts with a duty to inquire about unusual activity;
  4. Logs of supervisory activities performed; and,
  5. Documentation of supervisory review.

Where a brokerage firm discovers red flags, a duty to make an affirmative inquiry or investigation arises.  They must look into the matter and act decisively to detect and prevent any improper activity.  In the Matter of Grady, 1999 WL 222640 (SEC Apr. 19, 1999).

Proving Failure to Supervise

Although failure to supervise claims are often coupled with other broker fraud claims, proving liability is factually intensive.  A claimant must investigate the brokerage firm’s compliance procedures, employee correspondence, and ascertain the level of supervision exercised over client accounts.  The investor must prove that the brokerage firm failed to supervise its broker’s conduct or recommendations and that damages resulted.  

What Damages am I Entitled to for the Brokerage Firm’s Failure to Supervise?

Damages for unsuitability include, trading losses, well-managed account losses, rescission, disgorgement, punitive damages.

No Upfront Cost for FINRA Arbitration

You will not owe Astanehe Law a penny until after you obtain a successful settlement or judgment. Astanehe Law offers contingency representation which means there is no upfront cost in securing legal representation. Please contact Astanehe Law to learn if your FINRA arbitration claim qualifies for contingency representation.

Astanehe Law Knows the Duty to Supervise

Michael M. Astanehe possesses a zeal for helping investors bring claims against their brokers and brokerage firms.  Mr. Astanehe is an aggressive litigator with several years of civil litigation and arbitration experience.  He is willing to take your broker fraud case to the final arbitration hearing, if necessary.  This ferocity ensures that Astanehe Law will obtain the highest recovery possible for each client.

FINRA arbitration is stressful.  To that end, Mr. Astanehe provides each client with comprehensive legal service so that they remain fully-informed and comfortable throughout the process.

With Astanehe Law on your side, you are poised to obtain the maximum recovery possible.  Contact Astanehe Law today for your consultation!