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Failure to Supervise

Attorneys Protecting the Rights of Investors

Financial and securities brokerage firms must supervise the brokers whom they employ to prevent violations of securities laws. There should be employer supervision of recommendations, as well as transactions. In some instances, brokers are negligent or intentionally act against their clients’ interests, causing harm. Investors may be able to obtain redress from the firm for their losses, based on the firm’s failure to supervise. If you believe that a brokerage firm may have contributed to your financial losses, you should consult the securities lawyers at Varbero Casagrande.

Failure to Supervise

A firm may be held liable for an investor’s losses under a failure to supervise theory. The Securities Exchange Act of 1934 authorizes the SEC to start enforcement actions against a firm that does not adequately supervise its stockbroker-dealers. Moreover, when a broker’s negligent or wrongful acts harm a client, the firm might be liable for damages for its failure to supervise.

The Financial Industry Regulatory Authority (FINRA) is a non-governmental organization that regulates its members, which include brokerage firms and stockbrokers. The rules that FINRA promulgates govern the proper conduct of members of the organization, including their obligation to adequately supervise advisors and brokers.

FINRA Rule 3110

FINRA Rule 3110 mandates that an investment firm that is a member of FINRA establish and keep a system to supervise the activities of people associated with it. The system should be reasonably designed to comply with the securities laws and regulations and any FINRA rules that apply. The rule also sets forth a requirement for a firm to reasonably design written supervisory procedures to supervise the activities of associated people. The firm’s written supervisory procedures are supposed to set forth how often reviews will take place, the people responsible for each review, the supervisory activities that the people will perform, and the manner of storing documentation.

FINRA Rule 3120

FINRA Rule 3120 mandates that an investment firm that is a member of FINRA also have a system of supervisory control procedures and policies that test and verify the firm’s supervisory procedures developed in adherence to Rule 3110. This system is supposed to test the written supervisory procedures on a yearly basis to make sure that these supervisory rules are designed to achieve compliance with the appropriate securities laws, regulations, and rules.

FINRA Rule 3130

FINRA Rule 3130 mandates that a firm choose and identify one or more of its principals to serve as chief compliance officer (CCO). The rule requires the firm’s CEO to certify on a yearly basis that the firm has put in place processes that keep, establish, test, review, and modify procedures and policies that are reasonably designed to comply with pertinent securities laws and regulations and FINRA rules. The processes of the firm need to be submitted to an audit committee and the board of directors. The CEO needs to certify that he or she met with the CCO in the prior 12 months to talk about the firm’s processes and certain other issues.

A firm’s failure to put in place and maintain adequate supervisory procedures can result in FINRA acting to discipline the firm. This disciplinary action can result in a suspension, fine, or ban. Additionally, as an investor, you can retain an attorney to bring a customer dispute if you lost money because of the firm’s failure to supervise. Arbitration and mediation at FINRA can be relatively efficient and inexpensive ways of resolving disputes. You can ask FINRA to arbitrate or mediate if you have a dispute involving a FINRA member.

Seek Advice From a Knowledgeable Securities Lawyer

Sometimes significant losses are incurred because of a brokerage firm’s failure to make sure that its employees are abiding by securities laws, regulations, and rules. If you are seeking to hold a firm accountable for your losses, you should consult Varbero Casagrande. Our attorneys represent investors throughout the U.S. in a variety of complex claims. We have substantial experience in securities arbitration. Call our New York Office at: (646) 378-4400, or our Florida Office at: (954) 998-7910 or contact us online.

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