Broker-Dealers Can Be Held Primarily Liable For Failing To Fulfill Their “Gatekeeping Responsibilities” Of Monitoring Their Clients’ Trading Activities10/02/2023
Warshaw Burstein Prevails Against Formidable Opposition from Major Banks and Brokerage Houses
NEW YORK – October 2, 2023 – Warshaw Burstein, LLP, a full-service law firm in New York City, today announced that on September 29, 2023, Federal District Court Judge Lorna Schofield of the Southern District of New York issued an Opinion and Order in Harrington Global Opportunity Fund Ltd. v. CIBC World Markets, Inc. et.al that will reverberate through the compliance departments of every brokerage firm on Wall Street.
In her decision, which denied the defendants’ motion to dismiss Harrington’s market manipulation claims of spoofing, Judge Schofield found that broker-dealers may be primarily liable for manipulative trading initiated by their customers because they serve as “gate-keepers” of trading on securities exchanges, and have a “continuing responsibility to ensure that their customer’s order flow ... is in compliance with all applicable rules, regulations and laws and detect and prevent manipulative or fraudulent trading … under the supervision and control of the firm.”
In their motion, the defendants unsuccessfully argued that they are not responsible for what they characterize as “their customers’ trading” — and accordingly cannot be held liable for unlawful trading that they carry out on behalf of customers. The Court categorically rejected the defendants’ argument and held that where a broker-dealer fails to monitor its customers’ trading and is “reckless in not knowing that the trades being executed at their customers’ direction were manipulative" the broker can be held primarily liable.
Alan M. Pollack, a partner at Warshaw Burstein LLP, who together with Leron Thumim, partner Felicia S. Ennis, and the Christian Attar law group represent Harrington, said, “this decision is a clear and unambiguous warning to broker-dealers that unless they fulfill their gate-keeper responsibilities of monitoring their customers’ trading they can be held primarily liable for their client’s manipulative conduct. Brokers can no longer claim that they are not liable for their customers’ trading activities because they are only following their directions. A broker can now be held primarily liable under the federal securities laws when they recklessly fail to monitor, detect and prevent the manipulative or fraudulent trading of their customers.”
Warshaw Burstein and the Christian Attar law group, working together over the past 22 years, have successfully prosecuted and collected millions of dollars in damages on behalf of their clients from broker-dealers, market-makers, hedge funds, and asset-based lenders who have engaged in market manipulation schemes.
Warshaw Burstein, LLP is a full-service law firm in New York City, that since its formation 97 years ago, has distinguished itself through superior and cost-effective legal service and personalized client care and attention. For more information, please visit www.wbny.com or visit us on LinkedIn, Facebook and Twitter: @warshawburstein.