Failure to Supervise

Federal securities laws as well as the rules and regulations of the Financial Industry Regulatory Authority (FINRA) require broker-dealers to supervise their brokers to prevent violations of federal securities law. FINRA Rule 3010 states, “[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. . .”

In other words, brokerage firms are responsible for the negligent or intentional acts of their brokers, as it relates to their investors. This duty to supervise places a higher burden on broker-dealers to ensure brokers are complying with all FINRA rules and regulations.

Federal securities laws also require broker-dealers to supervise their brokers to prevent violations of federal securities law. Section 15(b)(4)(E) of the Securities and Exchange Act of 1934 requires broker-dealers to reasonably supervise, with a view toward preventing violations of the federal securities laws, persons subject to their supervision. The SEC has repeatedly emphasized that the “responsibility of broker-dealers to supervise their employees by means of effective, established procedures is a critical component in the federal investor protection scheme regulating the securities.”

Essentially, the very essence of broker-dealer supervision is to ensure that brokers comply with suitability obligations and that they do not succumb to the ever present conflict of placing their interests ahead of their customers.

If a broker does commit misconduct against you as an investor, you may have a claim against their employer for its failure to supervise. Some examples include, but are not limited to:

  • Failure to properly train a broker
  • Failure to confirm that the broker recommended suitable investments to the investor.
  • Failure to ensure the broker provided accurate information to the investor.
  • Failure to report certain transaction to TRACE.

If you are an investor and you believe your broker has been recommending unsuitable transactions or has committed some form of financial malfeasance, contact the securities attorneys at Fitapelli Kurta today. Our firms prosecutes cases nationwide on a contingency fee basis. Do not wait, time is of the essence in these claims. Contact Fitapelli Kurta today for your free consultation.