Take Legal Action When Brokerage Firms Fail to Supervise FINRA Their Brokers
Holding investment firms liable when they try to shift their oversight failure onto the broker
Financial advisors and securities brokerage firms have a legal duty to monitor the actions and recommendations of their brokers to make sure the broker is complying with both FINRA rules and state and federal securities laws. When a broker dealer fails to supervise a broker’s conduct, the firm can be held liable for its failure to supervise.
The Frankowski Firm’s attorneys usually bring two claims when a firm fails to watch over broker misconduct for fraud. The first claim is an action against the broker for negligence or securities fraud. The second claim is against the brokerage firm or supervisor for failing to oversee the broker. We handle complex supervision claims for investors throughout the country.
What duties do supervisors owe investors?
Stockbrokers are supervised by branch managers or branch office managers (BOMs). The BOM has a duty to make sure the brokers they oversee compliance with regulatory rules and internal sales practice rules:
- The BOM must evaluate and screen the broker prior to hiring the broker.
- BOMs may review broker-client communications, order tickets, account opening documents, account holdings, and customer complaints.
- The BOM may also review account activity in the client accounts for which a broker is responsible, including:
- High-volume orders
- High-dollar value order
- Concentrated positions (too much of one stock in a single account)
- Excessive use of margin
- Unusual or excessive commissions
When broker negligence or misconduct occurs, the BOM should create a written record of the broker’s conduct. Our lawyers often use this written record to prove a case against the broker or firm.
Another way our firm can prove that the brokerage firm’s supervision of the broker was deficient is by examining a computerized database called a Central Registration Depository (CRD). The CRD contains record of a broker’s past conduct/misconduct. The CRD data can be obtained by running a broker check through FINRA’s website or contacting the relevant state regulator of securities.