Failure To Supervise

Inside every brokerage firm, internal controls and accountability systems must be in place to ensure that all information being passed along is correct and independently verified.  These regulatory rules are mandated through the National Association of Securities Dealers, or NASD. 

Fraud Through Failure Of Supervision

The NASD, specifically through Rule 3010, requires firms to supervise all representatives, retain customer records, retain transaction documents, and have system in place for reviewing this information and making sure all applicable employees participate.  Additionally, customer complaints must be filed with the NASD by brokerage firms if against their representatives. Commonly, if a supervisor at a firm fails to receive daily reporting from brokers and dealers that is independently verified, a large margin for fraud and misconduct is opened, and in turn, brokers are in violation of supervisory rules. The SEC Division of Enforcement ensures these protocols are established, actively followed and accountable at all times, in order to better protect investors from illegal, unethical, or negligent investment activity by their brokerage firm’s representatives that is not in the best interest of their clients. If a supervisor relies on information from employees without independently verifying them, or if insufficient supervisory programs are in place with a firm, legal action can be taken by affected investors against the firm, individual broker, and the negligent supervisor.

Getting Legal Help

If you feel your portfolio has been detrimentally affected by a failure to supervise employees, you should contact a securities fraud attorney right away to uphold all your legal rights to recover losses.