Failure To Supervise

Brokers or financial advisors who sell investment products which their firm doesn’t carry or offer may be liable for selling away from the firm, a practice usually prohibited because of its susceptibility to fraud, deception, and increased risk to investors.

One potential hazard of selling away is that an investor may falsely believe that an outside investment is endorsed in good faith by the broker’s firm, thus giving it a mistaken sense of legitimacy and security. Also, as the firm is not properly supervising the sale according to specific rules in the securities industry, investors are more susceptible to losing their money.

Given the high risk of fraud associated with selling away, the Financial Industry Regulatory Authority mandates that brokerage firms reasonably supervise their stockbrokers to prevent them from engaging in selling away. The duty to supervise is strict, and includes unannounced visits, audits, review of the brokers’ communications, and so on.

When a brokerage firm fails to adequately supervise its broker and prevent him from selling unapproved products to customers, away from the firm, the firm may be liable to such investors if the products turn out to be fraudulent or inappropriate for the investors.

If you believe you may have lost money as a result of purchasing an investment product from a broker or financial advisor away from his brokerage firm, please contact us for a free, no-obligation consultation regarding your legal situation and potential recovery options, by phone at 888-998-0530, via email at arosca@rscounsel.law, or through the contact form on this page.