Available 24/7Every FINRA-registered broker has a responsibility to reasonably supervise their associated persons. The broker can be liable to you in an arbitration claim if they fail to live up to this obligation. The broker misconduct attorneys at Rikard & Protopapas can help you seek compensation in a FINRA arbitration claim.
FINRA Rule 3110 states:
Each member shall establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations and applicable FINRA rules.
Note that the broker does not have the absolute obligation to prevent each and every single instance of wrongdoing. Their obligations are multifold, and they include:
- To have written supervisory policies and procedures in place
- Designating a principal to appropriately carry out supervisory activities
- To make sure that the policies and procedures are followed
Your Broker’s Supervisory Obligations
Examples of what brokers should do as part of their supervisory responsibilities include:
- Review and monitor transactions
- Monitor communications between brokers and customers (which must be saved as part of the firm’s recordkeeping obligations)
- Conduct periodic officewide compliance inspections
- Training brokers and ensuring that they are properly licensed
- Evaluating written procedures and amending them as necessary
- Conducting a yearly compliance interview with brokers to discuss FINRA rules
- Carefully scrutinizing new hires
These are just some of the things that a FINRA-registered broker must do to supervise individual representatives. The nature and extent of supervision should be tailored to the broker’s business. In addition, the broker has an obligation to apply heightened supervision to certain representatives who have a history of customer complaints or regulatory inquiries.
When You May File a Failure to Supervise Claim Against a Broker
While a failure to supervise violation is not automatic every time that a representative breaks a rule, it is more likely than not that the broker failed to uphold its responsibilities under FINRA rules. If the broker was properly supervising a representative according to established procedures, the rule violation likely would not have happened.
Thus, you will also likely attach a failure to supervise claim against the broker to an underlying claim, such as:
- Churning
- Unsuitable recommendations
- Breaches of fiduciary duties
- Failure to disclose information about the stock
- Misappropriation of customer funds
Proving a Failure to Supervise Claim
While failure to supervise often comes up as a result of another violation, it is a separate and distinct count in an arbitration claim. Below are the elements that you would need to prove to win your arbitration for failure to supervise:
- There was an underlying violation of securities rules or laws
- There was an association between the broker and the brokerage firm
- The brokerage firm had supervisory jurisdiction over the broker
- The brokerage firm failed to reasonably supervise the broker
The second and third elements are relatively easy to prove. If you can show that the broker was affiliated with the brokerage, there is an overwhelming chance that the brokerage would have the obligation to supervise.
Your lawyer would need to prove that there was a violation of FINRA rules and that the broker failed to reasonably supervise. If you demonstrate that a law was broken, you would need to find some hole in the brokerage’s compliance efforts, whether it is a gap in the written procedures or how this particular representative was supervised.
Policies and Procedures Are Critical
One of the first things that FINRA Enforcement will do when it performs an inspection is ask for a broker’s policies and procedures. They will review the written policies to see if they were adequate.
Then, FINRA will verify that the broker actually followed their own policies. FINRA could initiate an enforcement action that may result in fines or even bans from the securities industry.
Filing a Strong Failure to Supervise Claim Against Your Broker
From your perspective, you are interested in getting your money back or as much of it as you possibly can. To do that, you would need to file an arbitration claim against the broker according to FINRA rules.
You will have the chance to prove all your claims against the broker in a hearing. Usually, a failure to supervise claim is not the only ground that you would have as part of your arbitration. It is possible that the arbitrator could deny your other grounds but find that the broker failed to reasonably supervise, allowing you to recover some compensation.
You may be wondering how you can get your hands on evidence that shows what the broker did or did not do to supervise the individual broker and the brokerage in general. FINRA arbitration allows for limited discovery, where your attorney will be able to request information that is in the broker’s possession. They may be able to obtain proof that the individual broker was not properly supervised — even though you generally cannot take depositions in a FINRA arbitration claim.
How Our Attorneys Can Help in a Failure to Supervise Claim
Because of the complex nature of these procedures, you need an experienced attorney to help you file a failure to supervise arbitration claims with FINRA.
When you hire the attorneys at Rikard & Protopapas, we will do the following:
- Review your case to determine whether there were any violations of securities laws or FINRA rules
- Ascertain your best grounds on which you are likely to have success in your arbitration claim
- Draft your arbitration claim to file with FINRA
- Select the arbitrators in conjunction with the broker; this is one of the most important roles that your lawyer performs
- Gather evidence that can support your claim through discovery
- Negotiate a possible settlement or mediate your case with the broker
- Argue your case in front of an arbitrator, or through your filings if you have agreed to no hearing
Contact a Failure to Supervise Lawyer Today
If you believe that you have lost money due to a broker’s misconduct, you can take legal action against that broker. You need a lawyer who has specialized knowledge of the FINRA arbitration process because that is the only way that you can file a claim against a broker.
The attorneys at Rikard & Protopapas deliver results for clients who have lost money because of unscrupulous brokers. To schedule a free consultation, you can send us a message online, or you can call us today at (803)-805-7546.