Your broker did something wrong. The branch manager had to know. Someone in the firm should have reviewed the trades, the commissions, or the account concentrations. When a brokerage firm fails to detect or stop misconduct, the firm itself can be liable.
Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers, helps investors hold firms accountable for failures of supervision. We work on a contingency fee basis, so you pay nothing unless we recover money for you.
Our partners are former Wall Street defense attorneys. We have reviewed the same supervisory reports and exception reports that firms use internally. Our firm has a 98% success rate and 95+ years of combined attorney experience. Call 1-888-885-7162 for a free case review.
What is failure to supervise?
Brokerage firms must establish, maintain, and enforce supervisory systems. These systems must be reasonably designed to achieve compliance with Financial Industry Regulatory Authority (FINRA) rules and securities laws. This obligation is not optional.
A firm fails in its supervisory duty when it lacks adequate written procedures, fails to review trades, or ignores red flags. The duty is also breached when a firm allows a rogue broker to continue harming customers.
The core supervisory rules are FINRA Rule 3110 (Supervision) and FINRA Rule 3120 (Supervisory Control System). Rule 3110 requires firms to adopt and enforce written procedures, assign qualified supervisors, review incoming and outgoing correspondence, and investigate red flags. Rule 3120 requires an annual review and testing of the firm’s supervisory control system and a report to senior management.
| FINRA rule | Key requirement | How a firm commonly violates it |
|---|---|---|
| FINRA Rule 3110(a)(1) | Establish and maintain a system to supervise associated persons | The firm has no meaningful branch-level review of trades or customer complaints. |
| FINRA Rule 3110(a)(2) | Adopt and enforce written supervisory procedures (WSPs) | The WSPs are generic, outdated, or never followed. |
| FINRA Rule 3110(a)(5) | Review and investigate customer complaints and red flags | The firm receives similar complaints about a broker but does not act. |
| FINRA Rule 3120(a) | Test supervisory procedures annually and report results to senior management | The annual review is a formality with no corrective action. |
| FINRA Rule 3120(b) | Senior management must receive a summary report on supervisory controls | Reports are prepared but not read or acted upon. |
Source: FINRA Rule 3110 and FINRA Rule 3120.
Why failure-to-supervise claims succeed
Most broker misconduct does not happen in a vacuum. Trades generate exception reports. Concentrated positions trigger risk alerts. Customer complaints create a paper trail.
A firm that ignores these signals is not just negligent; it is a key reason the losses continue. Courts and arbitrators have long held brokerage firms liable for failing to supervise their registered representatives.
| Red flag a supervisor should see | What the firm’s systems should flag | Why inaction supports your claim |
|---|---|---|
| Excessive trading | Turnover and cost-to-equity ratios outside normal ranges | A supervisor should investigate before the account is depleted. |
| Concentrated positions | A single security exceeds firm or industry concentration guidelines | Concentration is a well-known suitability and supervision issue. |
| Unauthorized trading patterns | Trade confirmations missing customer authorization records | Firms must be able to produce evidence of customer consent. |
| Repeat customer complaints | Multiple clients of the same broker allege similar misconduct | A pattern of complaints is a clear warning sign that supervision failed. |
| Unsuitable product sales | Sales of complex products to conservative or elderly investors | Supervisors are responsible for approving or rejecting such recommendations. |
What you can do now if you suspect a supervision failure
Firms often deny supervisory failures by claiming the broker acted alone. You can strengthen your case by documenting the red flags that the firm missed or ignored.
| Step | Action | Why it matters |
|---|---|---|
| 1. Save all complaints | Keep copies of every complaint or concern you raised with the firm. | A documented complaint puts the firm on notice and makes later denials harder. |
| 2. Gather account records | Print every statement, trade confirmation, and new account form. | Records show the timeline, red flags, and supervisory opportunities. |
| 3. Research the broker’s history | Search FINRA BrokerCheck for prior complaints, terminations, and regulatory events. | Prior problems show the firm knew or should have known the broker was a risk. |
| 4. Identify the supervisor | Find the branch manager and compliance officer assigned to your account. | Named supervisors make the claim concrete and force accountability. |
| 5. Request a free review | Call 1-888-885-7162 so we can evaluate the supervisory record and identify violations. | We know what internal reports firms are required to maintain and how to obtain them. |
How we can help
We review the firm’s written supervisory procedures and the branch manager’s supervision history. We also examine exception reports and any customer complaints involving the same broker. We identify the specific red flags that the firm ignored and use them to support a failure-to-supervise claim in FINRA arbitration or court. We advance the costs and are paid only if we recover money for you.
Related practice areas
Failure to supervise is usually paired with underlying misconduct. See our pages on churning and excessive trading, unauthorized trading, unsuitable investments, and FINRA arbitration.
Frequently asked questions
Can I sue the brokerage firm even if the broker was the one who did the trading?
Yes. Brokerage firms are responsible for adequately supervising their brokers. If the firm failed to detect or stop misconduct, it can be held liable alongside the individual broker.
What is the difference between negligence and failure to supervise?
Negligence focuses on the broker’s conduct. Failure to supervise focuses on the firm’s failure to implement and enforce the supervisory systems required by FINRA Rules 3110 and 3120.
Do I have to prove the firm knew about the misconduct?
No. You generally need to prove the firm failed to maintain a reasonable supervisory system. You may also show that it ignored obvious red flags that should have triggered an investigation.
What records can show a supervision failure?
Written supervisory procedures, exception reports, customer complaints, branch manager emails, and BrokerCheck history can all show that the firm missed or ignored warning signs.
How long do I have to file a failure-to-supervise claim?
FINRA generally applies a six-year eligibility rule, but state law deadlines may be shorter. Because supervisory records can be destroyed over time, act as soon as you suspect a problem.
How much does it cost to hire your firm?
We handle failure-to-supervise claims on a contingency fee basis. You pay nothing upfront and nothing unless we recover money for you. The initial review is free.
This page is for informational purposes only and does not constitute legal advice. Past results do not guarantee future outcomes.