Former customer alleges Interactive Brokers not producing all documents as required by Court

Online trading major Interactive Brokers and one of its former customers – Robert Scott Batchelar, are about to clash over discovery once again. This dispute is a part of a lawsuit brought by Batchelar, who claims that Interactive’s trading software was negligently designed, which resulted in an automatic liquidation of the positions in his account that cost him thousands of dollars more than it should have.

In a recent filing with the Connecticut District Court, Batchelar makes clear his position regarding the progress of discovery in this case.

Plaintiff’s counsel of record have reviewed all of the documents produced and all discovery responses served by Interactive Brokers. From this review, the plaintiff argues, it is clear that the brokerage has not completed document discovery and has not supplemented its written responses after its objections were overruled.

There are several categories of documents that in May 2019 Interactive Brokers agreed to produce, which it has not produced. 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.).

Finally, the plaintiff notes that Interactive Brokers agreed to produce 30(b)(6) witness(es) in lieu of answering certain interrogatories. The plaintiff has requested dates for these witnesses. IB made no response to the request for two weeks. In the absence of any response, plaintiff has served and will continue to serve notices.

Following Batchelar’s statement regarding discovery, the Court has scheduled a conference. The Status Conference is set for December 10, 2019 at 11:00 AM before Judge Alvin W. Thompson.

At the heart of this lawsuit are events from August 2015. On August 24, 2015, Interactive’s software declared a margin deficiency in Batchelar’s account and began liquidating his positions. All that Batchelar held in his account at that time were positions in a security called “SPX put option”. Batchelar had short-sold these positions, so as the sale price went higher, he lost more money. After declaring a margin deficiency, the software began liquidating Batchelar’s positions. It started at 10:11:15 A.M. and ended at 10:31:37 A.M. In that time, Interactive’s software made fifty-one trades at prices ranging from $5.00 to $83.40 per unit. At one point, during a nineteen-second period, the software executed eight trades at prices ranging from $7.00 to $83.40 per unit. This was higher than the going market price for the securities at the time of the sale. Batchelar claims that those transactions disproportionate to the market cost him somewhere between $95,145 and $113,807.

In his Second Amended Complaint, Batchelar alleges that the auto-liquidation was “the result of negligent design, coding, testing and maintenance.” He alleges that the programming flaws were the result of Interactive’s failure to meet industry standards in its design and testing of the software and its failure to include certain instructions in the algorithm.

Interactive Brokers has failed to dismiss the lawsuit, and had to respond to the plaintiff’s complaint by November 1, 2019. The response included a counterclaim against Batchelar. Interactive Brokers LLC asserted a counterclaim for breach of contract against Batchelar to collect a current unpaid negative balance in his margin account of (-) $75,244.88, inclusive of unpaid fees and charges.

On November 22, 2019, Batchelar filed his answer to Interactive Brokers’ counterclaim with the Connecticut District Court. In his response to Interactive Brokers’ counterclaim, Batchelar argues that his claim against Interactive in his Second Amended Complaint (and any further amendments) is an affirmative defense and offset against Interactive’s claims.

According to Batchelar, the broker breached the contractual arbitration clause by bringing its counterclaims in this action.

Finally, Batchelar argues that Interactive’s liquidation of his account paid in full, or in part, the amount owed by him (if any). Accordingly, Batchelar insists that the counterclaim should be abated until the motion to certify has been decided in this case.