Negligence
Negligence is a brokerage firm’s failure to use the care a reasonable firm would use, whether or not anyone intended to deceive. Tracy Pride Stoneman represents investors in these claims in FINRA arbitration nationwide, from Westcliffe, Colorado.
By Tracy Pride Stoneman, securities arbitration attorney Updated
| What happened | Rule or law | How it is proved |
|---|---|---|
| Failure to follow the customer’s instructions | Common-law negligence; FINRA Rule 2010 (high standards of commercial honor) | The written or recorded instruction against what the account shows |
| Failure to know the customer or keep the profile current | FINRA Rule 2090 (Know Your Customer); Rule 4512 (account records) | A new-account form never updated through retirement, illness or widowhood |
| Operational errors: wrong account, wrong security, wrong quantity | Rule 2010; the firm’s own written supervisory procedures | Trade corrections and the firm’s error-account records |
| Negligent supervision of the broker | FINRA Rule 3110 | Supervisory sign-offs, exception reports, heightened-supervision plans for brokers with a history |
A FINRA panel can award compensatory damages (out-of-pocket losses or market-adjusted “well-managed account” damages), interest, costs, attorney’s fees where a statute or contract allows them, and punitive damages in egregious cases. Claims must be filed within six years of the events under FINRA Rule 12206, and shorter state statutes of limitation may also apply.
If any of this sounds like your account, the next step costs nothing: a free, honest evaluation. Tell me what happened or call (719) 783-0303.
Common questions
Negligence: what clients ask
How is negligence different from fraud?
Fraud involves deception. Negligence is carelessness: falling below the standard of care the industry expects. Both can support a claim, and they are often brought together.
Is the brokerage firm responsible for its broker's mistakes?
Generally, yes. Firms are responsible for supervising their brokers, and a failure to supervise is a separate claim against the firm itself.
What does negligence look like in practice?
Missing obvious red flags in an account, failing to carry out instructions, placing investments without understanding them, or ignoring changes in a client's circumstances are common examples.
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