Failure to Supervise

Sometimes brokerage firms fail to properly oversee their employees. When that happens, brokers, advisors and other supervisory employees can put your investments at risk. The Investment Loss Recovery Group’s experienced attorneys focus on protecting investors and their assets. If a firm’s failure to supervise their employees has cost you your investment, we can help.

At the Investment Loss Recovery Group, we know what it takes to help clients recover their investments. We’ve handled many types of claims from failure to supervise, to allegations of fraud by firms and brokers. No matter what type of securities or investment claim you’re dealing with, we have the knowledge and resources to help.

Our former defense attorneys for the brokerage firms are also former licensed securities brokers. We understand the complex legal and regulatory issues related to the financial industry. Our experience as former brokerage firm defense attorneys has been invaluable as we are able to anticipate and counter defenses raised by defendants.

We’re dedicated to helping investors recover their losses. We have recovered millions of dollars for our clients from some of the largest Wall Street brokerage firms. If your investments have been compromised by a firm’s failure to monitor and correct their employees, we want to help you.

Contact us today for a free consultation and analysis of your potential claim.

What Is a Failure to Supervise?

A failure to supervise claim refers to a brokerage firm’s failure to exercise adequate oversight of their brokers. The financial industry has many rules and regulations designed to protect investors. These rules cover both individual employees and the firms that employ them. Firms are required to monitor the activities and communications of their employees to help protect investors from fraud, misrepresentation, and negligence.

Firm oversight of its employees is a critical part of regulating the financial industry and ensuring a trustworthy and ethical system for investing. When a firm fails to supervise its brokers or advisors, the individual brokers and advisors can take risks and engage in negligent or illegal behavior that harms you, the investor. Problems such as churning, overconcentration, and severe fluctuations in the value of an investment account can all occur.

The Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) both have rules that require firms to monitor and supervise the activity of their brokers. Firms are required to look for unusual activity, irregularities in broker behaviors, and conflicts of interest. These rules recognize that formal procedures for overseeing broker activity need to be in place and that failure to have these oversight systems can result in irregularities and investor losses.

How Do Firms Comply with Supervision Rules?

To adequately supervise brokers and advisors, firms rely on many tools including training, monitoring of accounts, yearly reviews, certification, and monitoring of broker and advisor communications.

  • Training. Brokers and advisors should be adequately trained to do their jobs, and individual firms should train their brokers and advisors on acceptable activities and investments. If a firm fails to adequately train their brokers and advisors, they may be liable when those brokers engage in negligent or illegal behavior. Adequate training and education help protect investors from negligent and unethical behavior.
  • Monitoring accounts. Brokerage firms should monitor client accounts and broker activity for signs of unusual activity. If a broker’s behavior indicates that they’re outside of statistical norms, the system may automatically flag that broker’s transactions for review. An automatic review can examine client investment concentrations, broker commissions, and the type and number of transactions. These are all important data points for detecting illegal or unethical behavior. If a firm fails to have adequate monitoring systems in place, it’s much easier for brokers to engage in questionable behavior. The monitoring described above is typically done electronically.
  • Yearly reviews. Regular review and updating of processes are important to protect investors. FINRA requires that firms engage in an annual review of their written supervision policies and supervisory control systems. These reviews help ensure up-to-date and effective supervision of broker activity. Failure to perform regular reviews of these policies and procedures may lead to gaps in supervision and investor harm.
  • Audits and Certifications. FINRA requires that the firm regularly audit the supervisory and oversight system. This helps assure the effectiveness of firm oversight. The audits are communicated to a senior executive who certifies the effectiveness of the system.
  • Monitoring employee communications. To effectively supervise employees, the firm needs to know what they are saying to clients and each other. This can include advertisements, promises to clients, and internal discussions about investments and strategies. Firms use electronic tools and manual review to ensure that employees are not communicating about or engaging in illegal behavior.

No matter how a firm monitors its employees, the goal is the same: to catch questionable behavior before it can spread. When a firm fails to supervise its brokers and other employees adequately, it risks the spread of illegal and unethical behaviors that can jeopardize investments. If lax monitoring has compromised your investments, it’s essential to get the legal help you need to investigate.

How Can a Firm’s Failure to Supervise Hurt Investors?

When a firm properly supervises its employees, it can catch illegal behavior and unintentional errors. When a firm fails to supervise its employees, it’s easy for employees to engage in criminal activity, have conflicts of interest, or neglect duties. Employees may steer investors toward unsuitable investments, or they may not rely upon the best data when informing investors about opportunities. Investors may lose money or suffer from subpar investments put in place to benefit the employees rather than themselves.

When a Firm Fails to Supervise, Investors Can Get Hurt

The Investment Loss Recovery Group knows what can happen when a firm fails to properly supervise its employees. Poor supervision can lead to illegal and unethical behavior that can adversely impact your investments. If you think that a broker has harmed your investments, it’s important to look at what the broker did and how the firm responded.

The Investment Loss Recovery Group has worked with clients to get to the bottom of supervisory problems. We’ll listen to you and work with you to understand your situation. No matter the issue, we have the experience and tools to help you recover your loss.

If you have questions about your case, contact us today for a free consultation. We’re ready to help.

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