Clients of Interactive Brokers stand by their claims about improper account administration

Maria Nikolova

The clients insist that the case, alleging that the broker improperly administered its “Portfolio Margin Accounts” by applying improper margins on ETN trades, must proceed.

Heather Hauptman and Timothy Moss, plaintiffs in a case targeting online trading major Interactive Brokers LLC, have sought to prove that their claims are reasonable and that the proceedings against the company must continue.

On Monday, August 27, 2018, the plaintiffs in the case filed a Letter Motion with the New York Southern District Court, aiming to prove that they have adequately alleged claims in their First Amended Complaint against Interactive Brokers, LLC and therefore, the first amended complaint should be accepted and the case should proceed. More specifically, the customers of the broker are trying to demonstrate that their stance addresses the issues raised in the Court’s Order from June this year, when Interactive Brokers managed to dismiss the complaint against the company.

Let’s recall that Interactive Brokers’ clients brought a putative class action against their former broker-dealer, alleging that the defendant breached its contractual obligations by including certain exchange traded notes (ETNs) in their portfolio margin investment accounts.

In their latest filings with the Court, the plaintiffs insist that they have now specified how and when they and Interactive Brokers established contractual agreements via the Portfolio Margin Disclosure Statement and other documents (the “2014 Agreements”) that prohibited Interactive Brokers from applying portfolio margin to ETNs.

Putting it otherwise, it is not the Customer agreements that are at the heart of the claims now. Rather, the broker’s clients allege that additional promises and commitments by Interactive Brokers were made in 2014 and that these “exceed those imposed by FINRA.” The plaintiffs now specifically allege that the parties’ Disclosure Statement was supplemented and amended by the 2014 Agreements that specifically promised and agreed that Interactive Brokers would not include ETNs in its portfolio margin accounts, and thereby Interactive Brokers subsequently breached its agreements when it did so, resulting in substantial losses for the plaintiffs and other putative class members.

The plaintiffs stress that the broker is incorrect when saying that the plaintiffs were not parties to the Disclosure Statement and the 2014 Agreements just because they opened their accounts in June of 2015. The customers have alleged that the 2014 Agreements, and specifically Article 21751 that prohibited ETN margin trading, were in effect until at least “January 2016”.

“Article 2175” consists of Interactive Brokers’ stated policy identifying “ETN products which will no longer be eligible for Portfolio Margining and will be subject to Reg. T margin during the week beginning May 19, 2014.”

FINRA Rule 4210 is no longer the predicate for the plaintiffs’ claims. plaintiffs’ claims arise from Interactive Brokers’ decision to implement Article 2175, which specifically agreed to stop trading ETNs in portfolio margin accounts without regard or reliance on FINRA rules or regulations.

The plaintiffs allege that by providing portfolio margin’s risk-based margining treatment for open positions in ETNs and options on ETNs – such as the VXX – the broker breached its contractual agreements with its customers.

The plaintiffs – Mr Moss and Ms Hauptman, engaged the services of a financial advisory firm, Meridian Capital Advisors, LLC and provided the firm with discretionary authority over their investments. Their accounts with IB account included VXX positions and IB was improperly applying Portfolio Margin treatment to their VXX positions.

As of the end of day on August 21, 2015, the total value in Ms. Hauptman’s Portfolio Margin Account was in excess of $200,000. At the end of the day on August 21, 2015, Mr. Moss’ account was valued at approximately $186,000.

Over the weekend after August 21, 2015, events unfolding in the Asian markets led to a drop in US stock futures. At around 12:00 AM on the morning of August 24, 2015, Interactive Brokers changed the margin requirements, increasing the margin requirement for the VXX and VXX option positions for all of its clients, including the plaintiffs. When the market opened on August 24, 2015, the Dow index dropped 1,000 points and the price of the VXX spiked. As a result, the value of plaintiffs’ Portfolio Margin Accounts (and those of all similarly situated IB customers) dropped. Also, because the broker had increased the Portfolio Margin requirements, many customers were put into a margin deficiency situation.

In the month of August, Ms. Hauptman’s account lost over $175,000, primarily as a result of the VXX and VXX option trades that occurred using Portfolio Margin leverage. Likewise, in the month of August, Mr Moss lost around $150,000, with most of the losses due to VXX and VXX option trades that occurred using portfolio margin leverage.

The case, captioned Hauptman et al v. Interactive Brokers, LLC (1:17-cv-09382), continues at the New York Southern District Court.

Read this next


US and South Korea seek extradition of Luna founder Do Kwon

Both US and South Korean officials are seeking to extradite Terraform Labs CEO Do Kwon, just hours after he was arrested in Montenegro.

Retail FX

Pepperstone UK doubles profit, client assets in 2022

The London-based entity of Australian FX broker Pepperstone has reported its financials for the fiscal year ending June 30, 2022. The group had outperformed the last year’s flat performance, having doubled revenues and boosted the broker’s bottom line and shareholders’ fortunes.

Institutional FX

CLS FX volume rises to just shy of $2 trillion in February

Foreign exchange settlement provider, CLS Group saw strong volumes in February 2023 as the banking crisis continues to weigh on a world economy that’s yet to fully recover from the Russia-Ukraine war’s shocks.

Digital Assets

Binance restores trading after 2-hour outage

Binance suffered a breakdown on its trading engine that lasted for about two hours, but the premier cryptocurrency exchange finally managed to restore normal operations at around 14:00 UTC.

Digital Assets

Tether earns $700 million in Q1, taking excess reserves to $1.6 billion

Tether chief technology officer Paolo Ardoino said the world’s largest stablecoin issuer expects to earn more than $700 million in the January-Mach quarter, which will be added to the reserve backing its stablecoin (USDT).

Digital Assets

Narwhal Finance Secures $1M in Seed Funding Led by Animoca Ventures

Narwhal Finance received strong support from Animoca Ventures and angel investors in a $1 million seed funding round, reinforcing the company’s vision of providing an accessible platform to all.


SteelEye tries ChatGPT for market surveillance

This capability can be used as a starting point for initiating a surveillance investigation and to standardize workflow processes to boost the throughput and consistency of cases. It is also useful when analyzing communications in foreign languages, as the system returns the above insights in English regardless of the languages being used.

Industry News

SEC charges ex-Morgan Stanley advisor of NBA players after $13m fraud

Darryl Matthew Cohen was arrested this week and is facing three different federal counts of fraud, which could amount to 20 years in prison if convicted, besides the SEC complaint. 

Industry News

AWS FinTech Africa Accelerator launched, applications until April 27, 2023

Founders will be offered tech resources, expert guidance, and a global network of industry leaders, technologists, entrepreneurs, investors, associations, and partners, in order to build their fintech products.