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Failure to Supervise Broker Misconduct Claims

Brokerage Firms have a Duty to Supervise Employees Behavior and Client Accounts

Financial firms, such as brokerage firms, have a duty to supervise and monitor employee conduct and transactions in clients' accounts.  If a financial advisor is negligent or commits investment misconduct, then the brokerage firm may be liable both for the investment misconduct and also for a failure to supervise the financial advisor's misconduct.

The Financial Industry Regulatory Authority (FINRA) implemented rules designed to protect investors and require that financial firms meet their duty to supervise.   For example, under FINRA Rule 3110, a brokerage firm owes a duty to all of its clients to monitor and supervise its employees properly. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”  

Specific Brokerage Firm Supervisory Duties

Specifically, brokerage firms are required to establish and maintain a system to supervise financial advisor's recommendations to clients, communications with the public (including current clients), outside business activities, and perform due diligence on products the firm offers to clients.  Brokerage firms may violate their supervisory responsibilities if an employee commits any of the following misconduct.

  • Improper Asset Allocation

  • Breach of Fiduciary Duty

  • Churning

  • Fraud

  • Misrepresentations and Omissions

  • Negligence

  • Overconcentration

  • Ponzi Schemes

  • Selling Away

  • Unauthorized Trading

  • Recommending Unsuitable Investments and Strategies

At Lufrano Law, LLC, our attorneys have experience in fighting against broker-dealers on behalf of our clients.  We routinely bring failure to supervise claims against Wall St. firms.  Please contact us today for a free, no-commitment consultation.

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