Duty to Supervise

Every broker dealer has a duty to establish and enforce an effective supervisory system designed to prevent violations of the securities laws. FINRA Rule 3110 sets out the requirements for establishing and implementing a supervisory system.

The branch manager and the chief compliance officer have a multitude of duties and responsibilities to make sure that the firm’s registered representatives are observing “high standards of commercial honor” in dealing with customers. Among their duties are ensuring that a client’s opening account documents are properly completed; approving the daily transactions, periodically reviewing transactions for suitability and following up on “red flags” or indications of wrongdoing.

Failure to supervise is one of the most commonly brought claims in FINRA arbitrations. On the regulatory side FINRA referred more than 700 fraud cases for prosecution in 2014 and levied more than $166 million in fines.  Most of these cases involved a breakdown in the supervision chain at the broker dealer level.

The Law Office of David Liebrader practices exclusively in the field of investment loss recovery and our securities attorneys have successfully resolved over 1000 investment loss cases over the past 20 years. Recoveries for clients top $40 million. The types of claims we have successfully handled include those involving unsuitable investments (suitability claims), excessive trading or “churning”, misrepresentations and omissions, unauthorized trading, over-concentration of illiquid or overly risky investments, pump and dump scams involving “penny stocks”, direct participation programs (private placements) involving real estate investment trusts (REITS), oil and gas exploration programs, leasing equipment deals and receivable financing, promissory notes whether sold through a broker dealer or as part of the outside business activities of a registered representative, ponzi scheme losses, failure on the part of the broker dealer to perform due diligence, state securities law (blue sky) violations and failure to supervise.

Investment losses can be recovered through a process known as FINRA arbitration. FINRA regulates broker dealers that sell investments, and provides an arbitration forum to resolve investor disputes. Investors can pursue claims against their brokerage firms in the FINRA arbitration forum. Common claims in the forum are those for suitability, breach of fiduciary duty, misrepresentations and omissions, negligence, violation of FINRA rules, state and federal securities laws violations, elder abuse, breach of contract and failure to supervise. On average, the recovery process takes approximately a year, from start to finish.

FINRA’s rules require that all investment recommendations made by licensed financial advisors be suitable in light of a customer’s needs, objectives and risk tolerance. In addition, all registered representatives are required to be properly supervised, with periodic inspections and reviews by qualified supervisors, whose job it is to vigorously investigate suspicions of wrongdoing (red flags).

If you have suffered investment losses please call The Law Office of David Liebrader at (702) 380-3131 for a free, confidential consultation