Negligent Supervision

At Gardi, Haught, Fischer & Bhosale LTD, our experienced legal team of negligent supervision attorneys understand that brokerage firms like Merrill Lynch and LPL Financial have a legal obligation to reasonably supervise the actions of their financial advisors and the accounts they oversee for clients. This responsibility goes beyond mere agency relationships and encompasses direct liability claims. Regardless of the advisor’s misconduct or employment relationship specifics, brokerage firms can be held directly responsible for negligent supervision if specific criteria are met.

Negligent supervision claims are particularly significant in cases involving fraud and Ponzi schemes. These situations often include scenarios where a financial advisor persuades a client to invest in something not formally offered by the brokerage firm, such as a company, promissory note, or partnership. This pattern is prevalent in Ponzi scheme cases. Even if the investor believed the firm sanctioned the investment, a successful negligent supervision claim can be established because it is a direct liability claim. Winning a negligent supervision case against the brokerage firm responsible for a broker’s Ponzi scheme is achievable if the elements are effectively developed and proven.

The duty element of a negligent supervision claim against a brokerage firm is rooted in FINRA Rule 3110, which mandates firms to “establish and maintain a system to supervise the activities of each associated person (broker/advisor) that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” This rule necessitates written procedures, internal inspections, transaction reviews, and applicant investigations by brokerage firms. Legal practitioners are well-versed in the law and its supplementary materials. Additionally, supervision and compliance manuals have been recognized by courts as admissible evidence of duty. Courts have also established that FINRA Rules can form the basis for negligence claims.

Once the duty element of the negligent supervision claim is established, the investor-claimant, like in any negligence claim, must demonstrate that the brokerage firm breached its supervisory duty. Typically, the firm may argue that it had proper supervisory procedures, executed them reasonably, and did not breach its duty. Overcoming this argument may require expert testimony and an experienced Schaumburg negligent lawyer for supervision to demonstrate that the strategies and their execution fell below the standard of care. Identifying “red flags” indicating misconduct and the firm’s failure to address them will be crucial.

Finally, the investor must prove that any damages suffered were a direct result of the firm’s negligent supervision. This causation element is met when evidence shows that, but for the firm’s negligent supervision, the financial advisor would not have engaged in the misconduct, and the investor would not have suffered harm. Experienced Schaumburg negligent supervision attorneys who represent investors and handle negligent supervision claims are skilled in gathering the necessary evidence through the discovery process and presenting it effectively to maximize the chances of success for investors. At Gardi, Haught, Fischer & Bhosale LTD, our team of seasoned Schaumburg negligent supervision attorneys is dedicated to assisting investors in holding brokerage firms accountable for negligent supervision in Schaumburg. Contact one of our Schaumburg negligent supervision attorneys today to discuss your legal options and have your questions answered.

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