Lack of Supervision Continues to Haunt Wall Street Firms

A recent article on the magazine “On Wall Street” confirmed that compliance officers for firms are concerned with increasing responsibilities as they struggle to keep up with regulatory changes. A survey revealed that 68% said their biggest problem was having too many other responsibilities, 14% said they lacked funding and 73% said that their budgets for the last two years had remained the same or had been reduced. Firms have typically tended to consider supervision and compliance secondary to the more profitable aspects of the brokerage business. This is unfortunate since the wrongdoings in the majority of all cases taken to arbitration could have been prevented by effective supervision and compliance.

The failure to supervise or lack of supervision has recently resulted in significant FINRA arbitration awards or actions against brokerage firms:

  • A panel in California awarded actor Larry Hagman $10 million in punitive damages against Citigroup for the failure of the branch manager to properly supervise one of the top producers in the office. (FINRA# 09-03251; Larry Hagman, et al. v. Citigroup Global Markets, Inc.)
  • A panel in Arizona entered an award against Morgan Stanley for $91,400 for the failure to supervise. (FINRA #09-05255; Raymond Cole v. Morgan Stanley & Company, Inc.)
  • The Financial Industry Regulatory Authority (FINRA) announced on October 20, 2010 that it had fined Ferris $500,000 for inadequate supervision of sales of reverse convertible notes to retail customers.

Mammoth awards and fines will continue in cases that are factually sound and have strong evidence of the failure to supervise by the firm. If you have suffered losses that you feel could have been prevented by adequate supervision, please contact our securities arbitration law firm at 1-800-259-9010 for a confidential, no obligation consultation and assessment of your case.

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