Customer suing Interactive Brokers accuses company of withholding source code

A former customer of Interactive Brokers who is suing the company for negligent design of its software resulting in automatic liquidation of the positions in his account that cost him thousands of dollars more than it should have has informed the Connecticut District Court of a discovery dispute.

The notice of discovery dispute, filed by Robert Scott Batchelar on August 24, 2020, says that the Court previously ordered Interactive Brokers to produce its Auto-Liquidation Software Source Code. In response, IB produced apparently complete Source Code from only three of the six Source Code modules. According to the plaintiff, IB is withholding Source Code from three of the six modules.

IB has not denied that the Source Code identified by the plaintiff is missing from the production, has not produced the missing Source Code, and has made no excuse for not having produced the Source Code.

Batchelar’s experts advise that examination of the missing Source Code is needed to confirm their initial opinions and identify for the Court the specific instructions in the code that are both (1) common to all class members’ liquidations and (2) the basis of Plaintiff’s claims in this litigation—both determinations being integral to the issue of class certification.

Also, the parties in this case disagree over remote access to source code materials. By letter, the plaintiff has proposed strict, secure protocols for remote access to the Source Code documents and has invited IB to propose alternatives. IB’s response, by letter, has been “no,” with no alternatives proposed. Batchelar believes IB is refusing any form of remote access to impede his ability to develop this case.

This is yet another dispute between the parties in this case regarding access to the source code. Let’s recall that, on May 1, 2019, Albert Lukazik, a Software Engineering Department Head, Senior Technology Manager, and Information Security Officer for Interactive Brokers LLC and Interactive Brokers Group, Inc., filed a Declaration in support of defendants’ objection to produce source code materials.

In his Declaration, Lukazik stresses that the source code is one of Interactive’s foundational assets and incorporates its trade secrets and know-how accumulated over a period of more than 20 years. The source code is comprised of approximately 600,000 lines of code and it refers to various subsystems within Interactive’s trading system. If access to Interactive’s source code were made public, the brokerage’s competitors would potentially be able to replicate aspects of Interactive’s margin liquidation system, Mr Lukazik noted.

Such access could potentially also allow customers to improperly utilize Interactive’s trading platform in a manner that may result in heightened trading and liquidity risks to IB LLC and IBG, based on their improperly-gained knowledge of the source code, Mr Lukazik said.

In December 2019, Batchelar wrote to the Court stating that the brokerage had not completed document discovery and had not supplemented its written responses. Back then, Batchelar identified several categories of documents that in May 2019 Interactive Brokers agreed to produce, which it failed to produce. Generally, this sub-set of production covers exemplars of standard forms, computer logs and order tickets generated when Batchelar’s account was liquidated, non-privileged reports regarding liquidation of Plaintiff’s account, and documents supporting the defendants’ position on the certification factors (e.g. commonality, etc.).