You did everything right. You worked hard, saved diligently, and entrusted your future to a financial advisor and their brokerage firm. You envisioned a secure retirement, a college fund for your children, and the financial freedom you deserved. But now, as you scrutinize your account statements, a cold dread comes over you. The numbers don’t add up.
You Trusted Them With Your Future. Now, It Feels Like That Future Has Been Stolen
The value has drastically dropped, and your portfolio is filled with risky investments you never consented to or comprehended. The trust is shattered, replaced by a gnawing anxiety and a sense of profound betrayal. Is it possible that a failure to supervise by the firm is part of the problem? Understanding and proving failure to supervise could be your path to reclaiming what you’ve lost.
If this story hits close to home, please know you are not alone, and it’s likely not your fault. At Bakhtiari & Harrison, we have spoken with countless individuals just like you—good people who have suffered devastating financial losses due to broker misconduct. We’ve learned that the problem often isn’t just about one dishonest broker, but a systemic failure by the brokerage firm to properly supervise its employees.
There is, however, good news. You do not have to silently accept these losses. The financial industry has powerful rules in place designed specifically to protect investors like you. In this guide, we will lift the veil on the critical, yet often invisible, responsibility of brokerage firm supervision. We will explain how a “failure to supervise” can directly lead to your financial losses and map out the clear steps you can take to fight back and reclaim your financial future.
The Problem: A Broken Trust and a Shattered Sense of Security
The entire relationship between an investor and their brokerage firm, along with their registered representatives, is built on a sacred foundation of trust. You trust that they have your best interests at heart. You trust in their registered representative’s knowledge. You trust them to follow the rules. When that trust is broken, the fallout is more than just financial. It’s deeply personal and can shake you to your core.
Right now, you are likely grappling with a whirlwind of difficult and confusing emotions:
- Crippling anxiety about your future: Your retirement plans feel like they are evaporating into thin air. You lie awake at night wondering, “How will I ever recover from this?”
- Overwhelming confusion: The financial world is a maze of complex jargon. You may know that something is terribly wrong, but you can’t pinpoint exactly what happened or why.
- A feeling of powerlessness: Taking on a large, well-funded brokerage firm can feel like an impossible, uphill battle. It’s easy to feel like you have no voice and no one on your side.
- Unwarranted self-blame: Many investors in your position start to second-guess themselves. “Should I have asked more questions? Should I have known better?” The truth is, the primary responsibility for supervision lies squarely with the firm, not with you.
These feelings are not only valid; they are a completely normal response to being let down by a system that was supposed to protect you from securities violations. The issue isn’t just a single poor investment—it’s a fundamental failure of oversight that has put your entire financial life in jeopardy.
Real-World Nightmares: How Supervisory Failures Lead to Devastating Losses
To truly grasp the severe impact of a firm’s failure to supervise, let’s examine some common, real-life scenarios we have seen play out time and time again. These aren’t just abstract risks; they are the painful realities that have brought many of our clients to our door.
The Retiree Pushed into “Aggressive Growth”
Imagine a recently retired teacher, age 67, who has carefully built a nest egg over her career for a peaceful retirement. She explicitly conveys to her registered representatives that her goals are capital preservation and generating a small amount of income. Her risk tolerance is, in a word, “zero.” However, the registered representative, seeking commissions from high-risk, speculative products, disregards her needs. Lacking meaningful oversight from a supervisor, the registered representative fills the retiree’s account with volatile technology stocks, complex private placements, and other high-risk assets that completely contradict her stated goals.
A supervisor performing a routine, required review should have immediately red-flagged this portfolio as grossly unsuitable. The glaring mismatch between the client’s profile (age, goals, risk tolerance) and the investments would be impossible to miss for any diligent supervisor. A simple conversation with the broker would have exposed the misconduct. But due to a negligent supervisory system, this review never happens. When the market corrects, the teacher’s life savings are wiped out. This tragedy was 100% preventable with basic supervision.
The Account “Churned” for Commissions
Think of a young professional, new to investing, who trusts his broker to manage his burgeoning account. The broker, however, is preoccupied with generating commissions for himself rather than focusing on achieving long-term growth for his client. This leads to a classic securities violation known as “churning”—excessively buying and selling securities in the account. Each transaction yields a commission for the broker, but the relentless trading activities deplete the client’s principal and fail to serve any legitimate investment purpose.
A competent brokerage firm uses sophisticated software to monitor trading activity and generate reports that flag accounts with high turnover rates or excessive commission charges. These red flags should trigger an immediate supervisory review. Without that oversight, the young professional’s account is slowly drained by fees and commissions, pushing his financial goals further and further away.
The Financial Exploitation of a Vulnerable Senior
Consider an elderly widow whose late husband always handled their finances. She turns to a “friendly” local broker for guidance. Seeing her vulnerability, the broker recommends a series of high-commission, illiquid products like non-traded Real Estate Investment Trusts (REITs) and variable annuities with steep surrender penalties. These products are not only unsuitable for her income needs but also lock up her capital for years, making it unavailable for potential medical or long-term care expenses.
FINRA has specific, heightened rules for protecting senior investors. A firm’s supervisory system must include procedures to scrutinize recommendations of complex products to seniors and to identify any red flags of potential financial exploitation. A failure to have and enforce these senior-specific procedures is a direct and serious failure to supervise, one that can have life-altering consequences for our most vulnerable citizens.
The Unsupervised “Rogue” Broker
In some cases, a broker may have a documented history of customer complaints or disciplinary actions. Brokerage firms are obligated under FINRA Rule 3010 and its successor, FINRA 3110, to conduct thorough due diligence before hiring a new advisor. If they hire someone with a problematic record, they must implement “heightened supervision” to ensure client safety. When they fail in this duty outlined by FINRA Rule 3010 and FINRA 3110, they effectively unleash a “rogue broker” on the unsuspecting public.
Imagine a broker who was previously terminated for making unauthorized trades in client accounts. He gets a job at a new firm that either fails to look into his past or ignores the red flags and fails to put him on a strict supervisory plan. He quickly falls back into his old habits, causing massive losses for his new clients. The firm’s negligent hiring and supervision practices make them directly liable for the harm caused.
These examples all share a common thread: The investor’s losses were not just the fault of a single unethical broker. They were the direct result of a brokerage firm’s systemic failure to properly supervise its own people.
Bakhtiari & Harrison – Your Advocate in the Pursuit of Justice
When taking on a formidable Wall Street firm in arbitration cases, you need an ally who understands the landscape and isn’t intimidated by significant opposition. At Bakhtiari & Harrison, we are that ally. With dedicated careers in securities law, we advocate for investors impacted by stockbroker misconduct, broker-dealer negligence, and investment fraud. Our expertise extends to a deep understanding of the intricate network of FINRA and NYSE regulations. We excel at identifying red-flag practices and, most importantly, know how to hold firms accountable when they violate these essential guidelines in arbitration cases.
We understand the fear and uncertainty you are feeling. We are here to bring clarity, confidence, and a clear plan to a confusing and painful situation. Our entire practice is built on two guiding principles: empathy and authority.
We Understand What You’re Going Through
We have sat at the table with countless individuals and families who have shared their stories of financial loss and betrayal. We have seen firsthand the emotional devastation this experience causes. We promise to listen to you, to answer your questions in plain English, and to treat you with the dignity and compassion you deserve.
We Have the Experience to Win
Our attorneys possess a proven record of successfully taking on the largest brokerage firms in the country and securing substantial financial awards for our clients through FINRA arbitration and litigation. We adeptly navigate federal securities laws to uncover failures in a firm’s supervisory duties. Our in-depth understanding of investment suitability enables us to pinpoint where brokers have misled investors.
Moreover, by scrutinizing a firm’s compliance system, we identify lapses that have allowed misconduct to occur. Our ability to demand the right documents and marshal compelling evidence gives us a critical edge in constructing a powerful and persuasive case demonstrating a firm’s failure to supervise. Our history of successful case results speaks for itself.
We are not just your lawyers; we are your advocates. We will stand with you and for you, guiding you through every step of the process to reclaim what is rightfully yours.
The Plan: A Simple, 3-Step Path to Reclaim Your Financial Life
We know how overwhelming this situation feels, which is why we have developed a clear and straightforward process to help our clients seek justice. Here is our simple, 3-step plan:
Step 1: Schedule a Confidential & Complimentary Case Evaluation
It all starts with a simple conversation. We invite you to a free, no-obligation consultation with one of our founding attorneys. In this confidential meeting, we will:
- Listen to Your Story: We want to hear what happened, in your own words.
- Review Your Documents: We will examine your account statements, new account forms, and any other relevant documents you have.
- Provide an Honest Assessment: Based on our review, we will give you our straightforward opinion on the merits of your potential claim. We will explain the specific rules that may have been violated in your case.
- Answer Your Questions: We will demystify the process and answer every question you have, empowering you to make an informed decision.
Step 2: Allow Us to Build a Powerful Case on Your Behalf
If we determine you have a strong claim and you choose to retain us, our team will immediately get to work building a case designed to win. This process involves:
- A Deep-Dive Investigation: We will meticulously analyze every trade in your account, scrutinize the firm’s supervisory procedures (or lack thereof), and investigate your broker’s employment and disciplinary history using industry tools like FINRA’s BrokerCheck.
- Leveraging Industry Professionals: We frequently collaborate with credible financial industry professionals who can serve as an authority in analyzing the misconduct and explaining to an arbitration panel precisely how the firm failed to meet its supervisory obligations.
- Filing a Formal Statement of Claim: We will draft and file a comprehensive and compelling Statement of Claim with the Financial Industry Regulatory Authority (FINRA). This legal document formally initiates your case and clearly outlines the facts, the rule violations, and the damages you are seeking.
Step 3: We Aggressively Fight for Your Financial Recovery
Once the claim is filed, we become your tireless champions, pursuing the maximum compensation for your losses. This is typically achieved through one of two paths:
- Skilled Negotiation & Mediation: We are experienced negotiators who know how to leverage the evidence to persuade firms to settle. Many of our cases are resolved through a successful mediation, securing a favorable settlement for our clients without the need for a full hearing.
- Tenacious FINRA Arbitration: If the firm refuses to offer a fair settlement, we are always prepared to take your case to a final arbitration hearing. We have a wealth of experience presenting complex financial cases to FINRA arbitration panels and a strong record of success.
Throughout this entire process, you will be kept informed and involved. We believe an empowered client is a successful client.
The Foundation of Your Case: FINRA and NYSE Rules Mandate Strict Supervision
What gives you the right to hold a multi-billion dollar firm accountable for your losses? The answer is found in the comprehensive rules established by the Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE). These aren’t suggestions; they are legally binding regulations with the full force of law.
At the very heart of these regulations is the non-negotiable duty of supervision. FINRA has made it crystal clear: brokerage firms are responsible for the actions of their advisors. This is the single most important layer of investor protection.
Let’s break down the key rules that form the bedrock of a “failure to supervise” case:
FINRA Rule 3110 (Supervision)
This is the master rule governing supervision. It requires every single brokerage firm to “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.”
Written Supervisory Procedures (WSPs)
Firms can’t just “wing it.” They are required to create and maintain a detailed manual of Written Supervisory Procedures (WSPs). This manual must act as a playbook, outlining exactly how supervisors will monitor their brokers’ activities, from reviewing client emails to approving trades in client accounts.
Designated Supervisors
Every broker must be assigned to a specific, qualified supervisor. A firm can’t have brokers operating without direct oversight. That supervisor must have the authority to enforce the firm’s WSPs and discipline brokers who fail to comply.
A System for Reviewing Trades and Accounts
This is where the rubber meets the road. Firms must have a system in place to review client account activity to detect and prevent potential misconduct. This system should be designed to flag:
- Unsuitable Investments: Is a retired schoolteacher being sold highly speculative stocks?
- Churning: Is trading activity excessive in an account, suggesting the broker is trading just to generate commissions?
- Unauthorized Trading: Is there any evidence of trades being made without the client’s explicit permission?
- Overconcentration: Is a client’s entire life savings concentrated in one or two risky stocks, creating an inappropriate level of risk?
Investor Protection Through FINRA
FINRA not only sets the rules but also provides the arena for investors to seek justice: FINRA Dispute Resolution. The FINRA arbitration forum is a more efficient and less costly alternative to court, where investors can bring claims against their brokerage firms. FINRA also provides a critical free tool for investors called BrokerCheck, which allows you to view the employment and disciplinary history of any broker or firm. We urge every investor to use BrokerCheck before and during their relationship with an advisor.
When a brokerage firm cuts corners on these fundamental obligations, they are not just being careless—they are violating the law. And when that violation causes you to lose your hard-earned money, they must be held financially accountable.
Take the First Step Toward Justice Today
You have worked far too hard to see your financial dreams derailed by a firm’s negligence. You do not have to be a victim. You have the power to stand up, fight back, and reclaim what is rightfully yours.
Your journey to financial recovery starts with one simple, powerful step. Contact Bakhtiari & Harrison today to schedule your free, confidential case evaluation. There is absolutely no cost or obligation. This is your chance to get answers from experienced attorneys who have dedicated their careers to helping investors just like you.
Do not let another day pass in a state of anxiety and uncertainty. Complete the confidential contact form on our website. Let us be your guide.
Envision Your Future: Success vs. Failure
Imagine a future where the weight has been lifted. The anxiety is gone, replaced by a sense of peace and vindication. You have been justly compensated for your financial losses, and you can look toward your retirement with confidence and security once again. You became the hero of your own story by taking action. This future is within your reach.
Now, imagine the alternative. If you do nothing, your losses will almost certainly be permanent. The firm that failed you will face no repercussions and will be free to continue its negligent practices. The stress and uncertainty you feel today will linger, casting a long shadow over your future.
The choice is yours. You can choose to accept the story that has been written for you, or you can pick up the pen and write a new ending. We are here to help you write it. Contact Bakhtiari & Harrison today.