According to FINRA rules, a brokerage firm has an obligation to implement policies and procedures that help monitor the activities of its brokers in order to guard against investor loss and investment fraud. In a Failure to Supervise claim, it may be the brokerage firm, not the individual broker, that is at fault, if there has been a failure to screen a new stockbroker or financial advisor before hiring. The brokerage firm also has a duty to ensure training and licensing, and continually monitor the broker’s communications, account activity, and customer complaints.
Can I Sue My Brokerage Firm for Investment Fraud/Losses?
Anyone who has been the victim of stockbroker fraud or broker negligence should be entitled to receive full and fair compensation for any of their financial losses. However, winning these cases and obtaining compensation can be incredibly challenging.
The claims process can be complex, and you can expect that the defendant in the case (the brokerage firm, a financial advisor, or both) will utilize experienced attorneys to fight back aggressively against any allegations. It is vital for anybody who thinks they have been the victim of investment misconduct on the part of their brokerage firm or their financial advisor to speak to a qualified attorney as soon as possible. Most individuals who have experienced this type of loss do not have the resources or legal experience to investigate the situation fully, be be assured, the brokerage firms do.
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When Can a Brokerage Firm Be Held Liable for Investment Losses?
First, it is important to realize that liability for your investment losses may not be the sole responsibility of your individual stockbroker or financial advisor. It may be the case that their brokerage firm could potentially be held legally responsible for misconduct. The negligence of a brokerage firm is often a key factor that allows individual financial advisors to commit fraud.
While a single financial advisor may have chosen to commit misconduct, the brokerage firm could be held liable if they did not have a proper supervisory system in place to oversee the advisor and protect their clients. In these cases, the brokerage could be held liable for actions committed by the advisor that would have been detected and prevented had they been properly supervised.
Under Section 20(a) of the Securities and Exchange Act, the law includes what is known as the Control Person Liability standard which means that firms are liable for the misconduct of their representatives (the financial advisor) unless the firm acted in good faith and did not indirectly cause the misconduct.
However, proving that a brokerage firm was negligent, and that their negligence allowed individual advisor misconduct, can be difficult and often requires extensive investigation on the part of a qualified attorney.
When Can a Financial Advisor From the Brokerage Firm Be Held Liable?
All financial advisors, such as stockbrokers and investment advisers, owe what is called a fiduciary duty to their clients. A fiduciary duty is the highest standard of care and requires financial advisors to:
- act in their client’s best interests
- put the interests of their clients above their own interests
- execute their professional duties with a high level of skill and care
When a financial advisor falls short of their fiduciary duties, for whatever reason, they are guilty of negligence. If a financial advisor’s negligence contributes to an investor’s monetary losses, then the financial advisor may face a lawsuit and be held legally liable for damages.
Negligence in these cases can happen in many different ways. This includes, but is not limited to, the following:
- Offering unsuitable investment recommendations
- Unauthorized trading
- Over-concentration of investments
- Selling away
- Ponzi scheme activities
- Guaranteeing unsubstantiated returns
Anytime an investor loses a significant amount of money due to the fraudulent or negligent activities of a financial advisor, the investor may be able to sue the financial advisor, the brokerage firm, or both in order to recover damages for their losses.
If you have been the victim of investment fraud, you may be able to bring a failure to supervise claim against the brokerage firm in order to recover your lost funds. The investment fraud attorneys with Meyer Wilson represent investors nationwide, and have recovered hundreds of millions of dollars in losses for our clients. Call us or complete our online form for a free case evaluation.
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