Interactive Brokers fined for Fund manager's losses


interactive-brokers-300In an interesting twist of events, one of US largest brokerage firms, Interactive brokers has been ordered to settle trust fund beneficiaries; Brian and Jessica Parker with $1.2million in compensation. The settlement is based on claims that the broker aided and facilitated “reckless trading” by their trust fund overseer.

The initial complain was made in 2013 by the two trust fund beneficiaries to the Financial Regulatory Authority (Finra). They claimed that a trust fund worth of $800,000 was invested with the aim to cater for their welfare in their father’s will, but was mismanaged and reduced to just $75,000 in four years time. They alleged that 90% of their funds were lost by Robert Dillard, the trustee of the account through margin trading and options strategies. They also alleged that Interactive brokers "approved and assisted” the trustee's negigent approach to managing the account. Brian and Jessica Parker then demanded demanded $1.7 million in compensation, and have eventually been awarded $1.2 million as Interactive Brokers fined. The regulators gave no explanation for this decision.

David M. Battan, Interactive Brokers Group’s Executive Vice President, expressed his displeasure towards the decision saying: “We disagree strongly with the award and we are examining the possibility of appealing it. The case involved trading decisions by a trustee of a family trust and, as an online broker that gives no advice or trading recommendations, Interactive Brokers had no factual or legal responsibility for those trading decisions.”

In a further comment, the Executive Vice President explains his reasoning for the disagreement: “Two members of the Panel appear to have blatantly ignored the law and ruled against Interactive Brokers based on sympathy for the plaintiffs and based on their (incorrect) belief that the trustee was bankrupt and therefore judgment proof. The decision contains a very well-stated dissent by the Chairman of the Panel, who pointed out very clearly that there was no legitimate legal basis for the award.”

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Although we may not have adequate information to form a reasonable opinion about the case, but we can opine that such a decision by a broker to compensate a client for losses of an independent trader may be a dangerous decision. This could open many more of such cases and potential prove unfair to the online brokerage business.

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