Interactive Brokers voices determination to defend itself in case brought by former customer

Maria Nikolova

The complaint alleges that customers of Interactive Brokers LLC were harmed by alleged “flaws” in the computerized system used by the broker.

Online trading major Interactive Brokers Group, Inc. (IEX:IBKR) has provided an update on litigation matters. The update is included in the 10-K report the broker filed on Thursday, February 28, 2019, with the Securities and Exchange Commission (SEC).

The broker reiterates its intentions to defend itself in a class action brought by one of its former customers.

On December 18, 2015, a former individual customer filed a purported class action complaint against Interactive Brokers LLC, IBG, Inc., and Thomas Frank, PhD, the Company’s Executive Vice President and Chief Information Officer, in the U.S. District Court for the District of Connecticut. The complaint alleges that the former customer and members of the purported class of IB LLC’s customers were harmed by alleged “flaws” in the computerized system used by the Company to close out (i.e., liquidate) positions in customer brokerage accounts that have margin deficiencies.

The complaint seeks, among other things, undefined compensatory damages and declaratory and injunctive relief.

On September 28, 2016, the District Court issued an order granting Interactive Brokers’s motion to dismiss the complaint in its entirety, and without providing plaintiff leave to amend.

On September 28, 2017, the plaintiff appealed to the United States Court of Appeals for the Second Circuit. On September 26, 2018 the Court of Appeals affirmed the dismissal of plaintiff’s claims of breach of contract and commercially unreasonable liquidation but vacated and remanded back to the District Court plaintiff’s claims for negligence.

On November 30, 2018, the plaintiff filed a Second Amended Complaint. The broker filed a motion to dismiss the new complaint on January 15, 2019 requesting that the District Court dismiss the remaining negligence claims.

In its 10-K report, Interactive Brokers notes that, regardless of the ultimate outcome of the motion to dismiss, the company does not believe that a purported class action is appropriate given the great differences in portfolios, markets and many other circumstances surrounding the liquidation of any particular customer’s margin-deficient account.

“Interactive Brokers LLC and the related defendants intend to continue to defend themselves vigorously against the case and, consistent with past practice in connection with this type of unwarranted action, any potential claims for counsel fees and expenses incurred in defending the case shall be fully pursued against the plaintiff”.

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