New York, NY securities attorney Jenice L. Malecki talks about the types of damages typically sought in a failure to supervise case. She states that in a failure-to-supervise case, the central argument is that the underlying wrongful conduct should never have occurred. Proper supervision by the firm would have identified and stopped the misconduct before it happened. Brokerage firms and registered investment advisors are required to review and approve all transactions, and they maintain numerous errors-and-omissions reports that circulate internally.

Exception reports are particularly important, as they help identify red flags of potential wrongdoing. Firms are expected to diligently monitor these reports and take appropriate action to prevent harm. If a violation occurs, the firm may be held fully responsible, alongside the individual who perpetrated the misconduct, for any resulting damages. These can include net out-of-pocket losses, well-managed theories of damages, interest, attorneys’ fees, and in certain cases, even punitive damages.