The Case

FINRA recently fined Merrill Lynch $1 million over a Texas Ponzi scheme.  The case, which involved a San Antonio broker who was sentenced to prison was covered in a recent blog post in the Stockbroker Fraud blog

The Merrill broker persuaded investors to put money into a partnership and used at one point $1.4 million of those funds for personal spending and to support his house-flipping business.  FINRA alleged that Merrill failed to properly supervise the broker and failed to monitor the accounts that were used to operate the Ponzi scheme. 

The Cause of Action

Texas employers will always have to be aware of a potential cause of action against them for the wrongful or negligent acts of their employees.  The negligent hiring/negligent supervision is a catch-all claim where the Plaintiff alleges that the employer either (1) improperly screened the potential employee during the hiring process; or (2) failed to properly supervise the actions of the employee. 

The latter is very difficult to defend in terms of obtaining a summary judgment because there is always the argument that the employer could have done something a little bit more to prevent some type of damage to the plaintiff.  That said, strong pre-employment screening policies and supervision policies mitigate against these type of claims.