Tennessee, famously home of Nashville and Memphis, has always drawn fans of art and music to its vibrant scene. Like other affluent centers of gathering, these cities also draw people with wealth. And where there is wealth, fraudsters are always lurking. Retail investors and retirees rely on financial firms to not only grow their wealth, but to protect it through vigilant oversight. For retirees, it can be devastating when they lose their nest egg either due to fraud or negligent management by a financial professional – in either case, proper oversight and controls by the financial firm can prevent most misconduct.
For over 25 years, the stock market loss attorneys at Malecki Law have been bringing successful actions, recovering tens of millions of dollars on behalf of investors against the nation’s largest financial firms for losses caused to investors through the firm’s lack of supervision. The Tennessee Securities Division is the state agency responsible for the protection of Tennessee investors, and it has brought numerous regulatory actions against financial firms that have failed to follow industry rules regarding supervision. The Tennessee Securities Division is the state agency responsible for the protection of Tennessee investors, and it has brought numerous regulatory actions against financial firms that have failed to follow industry rules regarding supervision.
One example of this lax oversight is from the Division’s consent order against LPL Financial LLC, in which it fined LPL for nearly $500,000, ordering the firm to pay this amount to Tennessee’s investor education fund. The consent order reaffirmed that every brokerage firm “is required to have a supervisory system that is reasonably designed to ensure that the broker-dealer complies with all state and federal laws, rules and regulations, including laws that prohibit the offer or sale of unregistered, non-exempt securities.” As well, that a reasonably designed system “at a minimum includes written policies and procedures governing the offer and sale of securities by registered persons [i.e. financial advisors/stock brokers], training for all associated persons, and supervisory procedures and designated supervisors responsible for ensuring compliance.” The order alleges that, for a period that spanned over a decade (between 2006 and 2018), various records reflected that LPL had “poor intradepartmental and interdepartmental communications and a lack of integrated supervision and governance over vendor agreements, order entry systems controls and Blue Sky [i.e. state law] compliance [which] contributed to the failure of certain personnel in both Trading and Compliance to recognize” that certain customer orders “had not been implemented into LPL’s order entry systems.” This resulted in “LPL fail[ing] to ensure there was a [surveillance] review specifically designed to address state securities registration requirements.”
The above failures went on for more than a decade, surely to the detriment of unwitting investors. But no matter how much money investors seem to lose to firms who fail to properly supervise their systems and accounts, regulatory actions alone still leave many investor victims out of pocket, rarely making them whole. For this reason alone, it is important for any investor who has been defrauded or misled in the financial markets to not solely rely on the success of a regulatory action, which can take years if seen through to completion at all, but to also consider bringing a parallel civil lawsuit against the firm that should have been keeping a close eye on your account. It is, thus, important to hire counsel from an experienced, investment loss law firm like Malecki Law, whose investment loss lawyers are familiar with how financial firms operate, as well as knowledgeable about the supervision rules they must abide by.
Brokerage and other financial firms have a legal obligation to supervise their employees, systems, and accounts, as spelled out, for example, in FINRA Supervision Rule 3111(a), which states:
“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.”
The italicized emphasis is added to denote the affirmative obligation that these firms have when faced with a lawsuit alleging a failure to supervise – it is the firm that has the burden to prove it had supervisory controls in place. This makes sense because it would otherwise be close to impossible for any investor to prove the absence of something, other than pointing to the losses in their account statements.
If you are a Tennessee resident and believe your account was mismanaged or believe that your broker caused losses in your account, you should contact the investment loss attorneys at Malecki Law for a free initial consultation. Our attorneys always ensure that investors are properly represented in accordance with state rules. We have litigated numerous lawsuits alleging failure to supervise in federal and state court, as well as in FINRA Arbitration, the forum where most retail investors are required to resolve their disputes. We know how to navigate these forums and what documents to seek from a financial firm to prove that an account was not properly supervised. Our results speak for themselves.