My broker/dealer requires all reps to buy errors & omissions (E&O) coverage through them at an inflated price. Are they violating the Sherman Antitrust Act? FINRA does not require reps to have E&O coverage. But we have to either pay up or face termination and the loss of our book of business. Is all of this legal?
The antitrust law is not applicable to the type of situation you're referring to. However, the Department of Labor has regulations, under the Fair Labor Standards Act, that prohibit an employer from forcing employees to purchase items that are considered to be for the benefit or convenience of the employer if doing so would reduce the employee's wages below the required minimum wage or overtime compensation. I'm assuming that's not a likely scenario for you, so your options are limited. You could move to a brokerage firm that doesn't require you to pay to buy E&O coverage. Consult with a labor attorney to see if the firm may be violating any regulations.
I'm in line for a promotion to a management position in my branch office. Before I accept, I'd like to know what my legal exposure might be. We have a branch manager who supervises the whole office. My position would be as the sales manager. What do you think?
The 1934 Exchange Act vests the SEC with the authority to impose sanctions on a person associated with a broker-dealer if that person "has failed reasonably to supervise, with a view to preventing violations of the provisions of [the securities] statutes, rules and regulations, another person who commits such a violation, if such other person is subject to his supervision." In the Exchange Act Release No. 31554 (Dec. 3, 1992), the SEC noted that someone can be deemed a supervisor when other members of senior management "involve him as part of management's collective response to the problem." The SEC further noted that "determining if a particular person is a 'supervisor' depends on whether, under the facts and circumstances of a particular case, that person has a requisite degree of responsibility, ability or authority to affect the conduct of the employee whose behavior is at issue."
Make sure your duties and responsibilities are well defined. A "sales manager" is normally focused on growing the retail group and educating the registered reps about products and services. It typically doesn't involve compliance-related duties. But if you've passed the general securities principal qualification exam, received training and understand that the chief compliance officer has delegated certain compliance responsibilities to you, then you could have some exposure in a "failure to supervise" action.
Alan J. Foxman is an attorney with the law offices of Rita G. Dew, P.A.
and a senior consultant with National Compliance Services, Inc.
in Delray Beach, Fla. He can be contacted at: this email address.