Tangled up in liability and lawsuits

How much liability can a firm have for misdeeds committed by third-party vendors? What about by clients?

The second question came up last week in a lawsuit seeking to hold Wells Fargo responsible for not detecting an alleged Ponzi scheme that bilked $300 million from victims. But the industry has been wrestling with similar matters for a long time.

Along the same lines, FINRA arbitration panels did hold Bank of New York Mellon's Pershing subsidiary responsible for a notorious Ponzi scheme.

On the vendor side, regulators are regularly reminding firms that their liability doesn't live only within their four walls. A long-contemplated Securities and Exchange Commission proposal would make wealth managers responsible for ensuring their third-party vendors abide by the industry's fiduciary standards.

Clearly, liability doesn't stop at firms' thresholds.