Kentucky Securities Arbitration Attorneys

Kentucky, the home of Churchill Downs and horse racing brings in excitement, visitors, and flows of gambling money into the state every year. But Kentucky is also home to urban and affluent communities and population centers like Louisville and Lexington, home to families, seniors and retirees. Senior investors, especially, know that their retirement accounts are no place for gambling. The Securities Division of the Kentucky Department of Financial Institutions (DFI) is the state regulator for securities activities. According to its website, it is the state agency that “works to keep your money safe,” wherein it “takes complaints and investigates suspected wrongdoing by industries the department regulates.” So, if you are a Kentucky investor who has lost money in the financial markets, one might expect that this is the agency to turn to get your money back, right? Not so fast.

While regulatory investigations may help keep bad actors in line, investors should know that relying solely on enforcement actions by a regulator is not necessarily the best path to full restitution or being made financially whole following a fraud or other industry misconduct. For this reason, investors should consider bringing a parallel civil lawsuit alongside any regulatory or criminal action against the wrongdoer that may be in the works. Kentucky investors can do so by seeking counsel at a securities arbitration law firm such as Malecki Law in New York, which has recovered over tens of millions of dollars on behalf of victimized seniors and retail investors nationally.

Moreover, some state regulators devote more resources to investigations of major financial firms than others, but Kentucky seems to have very few. While Kentucky’s DFI regulates broker dealers (i.e. brokerage firms) in the state, it appears, from its list of published securities enforcement actions, to have brought only one enforcement action in the last five years against what might be considered a major broker dealer, which was LPL Financial in 2018 (there is also one prior action against LPL from 2016). There are no other such actions unless going back to 2014, when three major firms were named in administrative consent orders - JP Morgan Securities, RBC Capital Markets, and UBS Financial. And unlike almost every other state securities regulator, the Kentucky DFI fails to provide a site with a link that makes it possible for the viewing public to read the settlement order and find out what misconduct occurred and how the firm was disciplined. In that regard, this defeats one major purpose of publishing regulatory infractions, which is to notify and protect the public. The other major purpose is deterrence, and failing to publish settlement information makes it further impossible to verify whether the imposed penalty could be reasonably viewed as a deterrent. If the penalties in Kentucky are like most other states, however, one can assume that any assessed financial penalty would be a mere “speeding ticket” for a firm that has hundreds of millions to billions or trillions of dollars under management — i.e., an accepted cost of doing business.

The above should, therefore, serve as a warning to Kentucky seniors or retirees who have lost money in the markets — whether due to fraud, a Ponzi scheme, unsuitable investment recommendations, or a firm’s failure to supervise investor accounts — to not rely solely on regulators to be made financially whole, but to consider consultation with experienced securities arbitration lawyers at Malecki Law.

At a national level, a regulator like the Securities and Exchange Commission (SEC) is clear that customers of brokerage firms, especially large ones, should be able to expect their investments to be protected from fraud and that their accounts will be carefully supervised:

“Customers dealing with a securities firm expect, and are entitled to receive, proper treatment and to be protected against fraud and other misconduct, and may properly rely on the firm to provide this protection. Large securities firms generally have established fairly elaborate systems of supervision and internal control, in recognition of customer reliance on the existence of protective safeguards and of the fact that it is to be anticipated that in a large organization some employees may be tempted to engage in improper conduct.”

In the Matter of Reynolds & Col., SEC Broker-Dealer Proceedings, 39 S.E.C. 902, 916 (May 25, 1960).

Similarly, the Financial Industry Regulatory Authority (FINRA) also has rules under federal law that require supervision, namely FINRA’s supervision rule, Rule 3110, stating:

“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 with applicable FINRA rules. Final responsibility for proper supervision shall rest with the member.”

FINRA Rule 3111 (a).

It is, thus, imperative for an investor seeking a financial recovery against large brokerage firms with these supervisory obligations, to not only hire securities arbitration lawyers fully familiar with supervision issues, but also to know what types of documents and exception reports to aggressively pursue in discovery, which would provide clear evidence of supervision (or lack thereof).

Malecki Law has extensive experience bringing successful failure to supervise actions against major financial firms, especially those with a track record for failing to exercise their supervisory obligations as evidenced by prior censures and fines, which are publicly accessible at a federal level, even if not in Kentucky. Our securities arbitration attorneys have recovered tens of millions of dollars for Ponzi scheme victims, or for unsuitable products (e.g., illiquid, non-traded REITs, annuities, BDCs, and other complex financial instruments), almost all from financial firms who had the aforementioned duty to supervise. Moreover, when illiquid securities are at issue, we take advantage of other legal remedies that may apply, such as seeking rescission, which is the legal term for canceling a transaction and requiring a seller of a security to take back the (now worthless or mostly worthless) security and fully refund the amount to the investor. If you are a Kentucky investor or retiree and have suffered investment losses, or believe your account was not properly supervised, you need a securities arbitration law firm. Please schedule a free initial consultation with Malecki Law – call us directly (212) 943-1233, or email jenice@maleckilaw.com.