Online trading firm Interactive Brokers Group was ordered by the Financial Industry Regulatory Authority Inc. to pay $1.2 million as part of an
arbitration award in which one of the arbitrators dissented, claiming that his fellow panelists acted out of sympathy instead of following the law.
Dissenting opinions are very rare in Finra's forum. Of the 4,526 awards since 2010, only 4% had a dissenting arbitrator, according to a statistics from
Securities Arbitration Commentator Inc., a research service that tracks data from arbitration awards.
The case revolved around a complaint filed with Finra by two beneficiaries of a trust fund who alleged that Interactive Brokers was negligent in allowing the trustee, who has settled with the complainants and was not named in the arbitration complaint, to make unsuitable and speculative trades with funds in the trust.
The trust's beneficiaries, Brian L. Parker and Jessica P. Valentine, argued that “Interactive Brokers approved and assisted [the trustee's] reckless trading and failed to stop him when it had a duty to protect claimants' interests as the listed owners of the trust,” according to the award. They were seeking $1.4 million in compensatory damages.
Interactive Brokers, however, argued that it should not be held responsible because it never gave any advice or trading recommendations, and as an online broker “had no factual or legal responsibility for those trading decisions,” according to an emailed statement from the general counsel for Interactive Brokers, David Battan.
Two members of the three-member arbitration panel sided with the complainants, although, as is customary, they did not explain their reasoning in making the award. The third, Malcolm Whittaker, dissented, explaining that the panelists may have been persuaded by an “apparent attempt to evoke sympathy” by the claimants.
“Claimants cannot meet their burden of proof, as a matter of law,” wrote Malcolm Whittaker, the chairman of the panel, in a dissenting opinion. “I am also seriously concerned that improper means were used to sway my fellow panelists.”
The claimants, Mr. Whittaker said, announced that they had learned that the trustee had declared bankruptcy in a related case that the beneficiaries had brought in state court.
That meant that their claims against the trustee were frozen and that assertion “improperly influenced the panel,” he wrote.
A lawyer for the trustee confirmed that his client had not filed for bankruptcy.
Mr. Battan said that Interactive Brokers is exploring an appeal.
“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,” he said.
The attorney for the claimants, Joseph Marrs of Johns Marrs Ellis & Hodge, did not respond to calls requesting comment.
The complaint initially named RBC Capital Markets, where the trustee also had an account for the trust, as well. RBC, however, settled with the claimants in February and the claims against the firm were dismissed. According to the BrokerCheck record for the RBC broker associated with the case, the firm settled for $37,500.
