Supervision Failure

State and federal laws require Wall Street brokerage firms to supervise the actions of their employees. In fact, if a stockbroker commits fraud against you, his employing brokerage firm can and should be held fully liable for damages.

It doesn’t matter if the fraudulent scheme originated from your brokerage firm or from your stockbroker. In most cases, the firm is legally responsible. Sometimes, stockbrokers carry out their employers’ dishonest tactics because they don’t want to lose their jobs. Other times, stockbrokers purposefully defraud investors, but the brokerage firm turns a blind eye because the fraud is generating so much money for the firm.

Even if your stockbroker unintentionally ‘dropped the ball’ and your investment losses were caused by accidental negligence, your brokerage firm is usually liable for its employee’s actions.

Sometimes, naming your stockbroker as a defendant in addition to your brokerage firm can actually make it more difficult to obtain a favorable outcome in your case. In most circumstances, your stockbroker won’t be named as a defendant.

If you’ve been the victim of stock market fraud, and you lost money because of it, stand up for your rights. Defrauded investors can pursue compensation for some or all of their damages by filing an FINRA (Financial Industry Regulatory Authority) arbitration claim.

Why is Failure to Supervise a Problem on Wall Street?

It’s important to remember that the biggest and most respected brokerage firms on Wall Street are also some of the biggest and most profitable corporations in the world. These giant banks and financial services companies do not exist for your benefit. They exist to generate billions of dollars for themselves.

Because of this extreme conflict of interest, Federal and State laws prevent brokerage firms from taking advantage of you. In order to prevent fraud from happening, brokerage firms are legally required to have compliance staff and supervisory personnel to catch and prevent instances of fraud or negligence.

Unfortunately, many securities laws, which include supervisory responsibility, are often ignored in the name of ‘making a profit.’ Here are the most important things brokerage compliance staff must do to prevent instances of stock fraud:

  • Constant supervision of the investments and transactions made inside broker managed accounts in order to catch investments and strategies that are inappropriate for investors’ needs.
  • Regularly checking in with each investor to make sure the investor is happy with the services received and understands the risk applied to their accounts.
  • Regular meetings with brokerage firm staff to educate staff on topics of compliance and how to manage client accounts so that laws are not violated.
  • Regularly updating and keeping track of supervisory policies contained in brokerage firm compliance manuals.

Unfortunately, the supervisory practices of brokerage firms are not fool-proof. With millions of customers, thousands of branch offices and hundreds of thousands of employees, a big brokerage firm can’t monitor everything.

Even still, sometimes brokerage firms purposefully allow fraudulent actions to continue because it’s usually the fraudulent actions that generate the most profit for the firm.

How Failure to Supervise Happens

Failure to supervise claims are an important part of almost every stock fraud legal action. Here are a few examples of how supervisory failures might happen:

  • A dishonest stockbroker lies to his senior citizen clients to sell them extremely inappropriate annuities. The more annuities he sells, the more commissions and profits he generates for himself and his brokerage firm. The brokerage firm ‘turns a blind eye’ or ‘drops the ball’ and doesn’t perform its duty to stop these inappropriate sales from happening.
  • An incompetent stockbroker invests an ultra-conservative investor into a portfolio of extremely risky stocks or gambles the investor’s money on high-risk strategies. The brokerage firm fails to supervise and make sure the investments inside its customer’s account fit the customer’s stated objectives and needs.
  • A stockbroker churns his clients’ accounts by making numerous and inappropriate transactions simply to generate profits and commissions for himself, yet the brokerage firm does not monitor the activity and allows it to continue unchecked while benefiting financially.

Bringing Failure to Supervise into Perspective

The legal concept of failure to supervise comes from the ancient legal doctrine called respondeat superior. In Latin, respondeat superior means ‘let the master respond.’ The basic concept of respondeat superior is that employers are liable for the wrongs their employees commit if they’re committed to the job.

Here’s how the legal concept of failure to supervise helps:

  • Supervisory standards protect investors from brokerage firms who order their stockbrokers to commit fraud or reward them for committing fraud. In cases where the employee was merely carrying out the will of his employer, the employer can be held accountable for a failure to supervise claims.
  • Failure to supervise claims provider fraud victims with a means to get compensation when their fraudulent stockbroker doesn’t have the financial ability to pay for the damages he caused.
  • Supervisory standards give investors recourse when their stockbroker causes them damages through accidental negligence.

Discovering the Fraud

When a brokerage firm is liable for failing to supervise the actions of your stockbroker, one or more of the following conditions is usually present:

  • Your stockbroker was an employee of the brokerage firm.
  • Your stockbroker committed fraud or negligence while ‘on the job.’
  • Your brokerage firm benefited from the fraud either purposefully or by accident.
  • Your brokerage firm rewarded your stockbroker for his fraudulent actions, most likely by way of commissions, bonuses or salary.
  • Your brokerage firm failed to carry out its supervisory duties and allowed you to be harmed.

Try and Get Your Money Back

If your financial losses were caused by stock market fraud or broker negligence, and your brokerage firm failed in its legal obligation to supervise your investment accounts, you deserve to receive compensation for the money you lost. Fraud victims can make a claim for damages and may qualify for full or partial compensation in addition to other types of reimbursement.

Investor fraud victims must realize that billion-dollar brokerage firms devise complicated schemes to extract money from unsuspecting consumers, violating numerous laws in the process. They can also cause you irreparable harm by way of accidental negligence. If you’re the victim of stock market fraud or broker negligence, remember it’s not your fault!

Pursuing a stock fraud claim will teach Wall Street brokerage firms it’s inexcusable to prey upon hard-working Americans and disregard their best interests and needs. Your claim may even prevent others from suffering as you have by forcing Wall Street brokerage firms to conduct business with honesty and integrity.

Contact Us

You may be eligible to receive compensation regardless of whether you sold or continue to hold the securities at issue. Contact us today to set up a free consultation. We will listen to your story, answer any questions you have and discuss your legal rights and options.

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