Brokerage Firm Liability

We all trust our brokers to make decisions that have our best financial interests in mind. Unfortunately, many of them abuse their position and play fast and loose with our funds. The law provides ways to hold them accountable for their actions, however, in addition to holding brokerage firms responsible for an investor’s losses in certain situations. If you have been burned by your broker in Los Angeles County or the surrounding areas, securities law lawyer Steve A. Buchwalter and his team of professionals can help you pursue the compensation that you deserve.

Like many medical facilities and law firms, brokerage firms have a duty to supervise and manage their brokers. A failure to adhere to this duty and to provide adequate supervision may expose the brokerage firm to liability for its brokers’ negligent acts. A number of state securities laws and federal regulations impose further requirements on brokerage firms when it comes to ensuring that their brokers are adhering to the law.

In a dispute against a brokerage firm regarding the alleged negligence of one of its brokers, the firm must show that it had in place a system to ensure adequate supervision and compliance with rules and procedures. The firm must also show that it undertook efforts to ensure the effective implementation and enforcement of these compliance rules and procedures. If a firm has failed to adhere to its duty to supervise, it will likely be liable for negligence.

Additionally, according to the doctrine of respondeat superior, an employer is liable for the acts that his or her employees commit during the course and scope of their employment. The acts must be carried out in furtherance of the employer’s goals and mission. For example, if a broker engages in churning, which is excessive trading for the purpose of racking up trading commissions, the brokerage firm may be liable for any financial losses that the client suffered as a result of the churning.

The relationship between a broker and an investor client is one of extreme trust and loyalty. As a result, in many jurisdictions including California the law imposes upon the broker a fiduciary duty. As a fiduciary of the investor’s financial interests, the broker is subject to a higher level of obligations that requires the broker to act in a faithful and diligent manner with regard to the client’s best interests. Any acts constituting fraud, misrepresentation, unauthorized trading, unsuitable trading, or deceit constitute a breach of the investor’s trust and a violation of the broker’s fiduciary duties.

To recover compensation from a broker or brokerage firm, the investor can either show statutory damages or show what his or her account would have likely been worth had the investor not engaged in the alleged conduct. The investor is typically entitled to statutory damages or the difference between the actual value of his or her account following the broker’s breach of fiduciary duties and what the account would have been worth had the broker acted according to his or her fiduciary duties.

Suffering a devastating financial loss as the result of a broker or brokerage firm’s failure to act according to their fiduciary duty can be stressful. The judicial system can be difficult to navigate and often creates more stress for individuals attempting to recover from an unexpected financial blow. Knowledgeable investment fraud attorney Steve A. Buchwalter can assist individuals in Los Angeles County and elsewhere in Southern California, such as in Orange, Ventura, and Santa Barbara Counties. Many of our clients come from communities such as Beverly Hills, Pasadena, Newport Beach, Irvine, or even outside the state. Call us at 1-(818) 501-8987 or contact us online to set up a free confidential consultation.