Interactive Brokers, Ponzi scam victims clash over evidence
Shortly after an amended complaint was filed against electronic trading major Interactive Brokers accusing it of aiding Ponzi scammer Haena Park, it has become clear that the parties in this case disagree over discovery.
In particular, the Ponzi scam victims want Interactive Brokers to produce certain evidence, whereas the broker argues that the requested volume of information is overly broad.
Let’s recall that plaintiff Benjamin Chang, a victim of Haena Park, claims to represent himself and others similarly situated as he brings this action against Interactive Brokers LLC (IBKR) for actual damages suffered by him and the class, and for other recovery for harm caused by IBKR aiding and abetting fraud and aiding and abetting breach of fiduciary duties.
Now, the parties have clashed over discovery, as demonstrated by the latest documents filed with the California Northern District Court and seen by FX News Group.
Plaintiffs explain they have served three document requests on IBKR. The requests seek:
- documents IBKR provided to any regulatory authority relating to the Haena Park Ponzi scheme;
- communications between IBKR and any regulatory authority relating to the Haena Park Ponzi scheme; and
- transcripts of any depositions or interviews of IBKR personnel that were conducted in connection with any investigation of the Haena Park Ponzi scheme.
The plaintiffs believe this targeted discovery is highly relevant, relatively low burden, and reasonable at this stage of the litigation.
IBKR has objected by stating that the requests are “premature and unduly burdensome because Plaintiffs’ Complaint remains the subject of a pending dispositive motion under Federal Rule of Civil Procedure 12(b)(6)” and until the Court enters “a discovery schedule, Defendant will not produce documents responsive to the Document Requests.” Although the FAC was filed on December 23, 2021, IBKR maintains its refusal to engage in discovery.
Interactive Brokers says that Plaintiffs’ initial document requests constitute an overbroad and improper fishing expedition, particularly since the CFTC has already reached a conclusion that fatally undermines Plaintiffs’ claims.
The broker asserts that any discovery would be premature and unduly burdensome while Defendant’s second motion to dismiss is pending, especially since Defendant has successfully obtained dismissal of Plaintiff’s initial complaint, this case is not on an expedited pretrial schedule, a hearing on Defendant’s motion to dismiss the FAC is forthcoming, and Plaintiffs have already waited years to assert their claims.
Plaintiff and the class allege they are victims of a Ponzi scheme perpetrated with IBKR’s knowing assistance. The scheme was devised by Haena Park, an IBKR customer who solicited funds from Plaintiff and the members of the class through fraud and deceit and then misused those funds for her own gains and to make phony dividend payments to other investors caught up in the scheme.
IBKR allegedly recognized Park’s account was used to conduct a fraud, identifying her suspicious activity in reports reviewed by compliance analysts more than a dozen times during the life of the scheme. Rather than report Park to the authorities, IBKR supervisors disregarded their own compliance department’s warnings to further aid Park, a lucrative IBKR customer, to continue the scheme through its brokerage services.
Through her IBKR account, Park lost over $19 million of her investors’ contributions before the scheme was discovered by regulators and Park was arrested.
In nearly every month it was in operation, Park’s IBKR account lost money. From 2012 to 2014, it lost $2.5 million, $2.2 million, and $2.3 million, respectively. In 2015, the account lost a staggering $7.8 million. As of 2016, the account had lost $17.5 million and another $1.5 million in cash was withdrawn. Rather than disclosing these losses, Park produced sham statements to her investors showing impressive gains from her Phaetra funds.
As Park’s customer risk rating increased, so too did the focus of IBKR’s compliance department on her account. Between 2013 and 2015, Park appeared more than 12 times in an internal IBKR report that identified account holders whose losses exceeded a certain percentage of their stated liquid net worth. This report was run monthly and searched for data over the prior six months. Each time Park’s account appeared on this report, IBKR compliance analysts manually reviewed Park’s historical trading activity. From 2014 to 2016, Park’s account appeared at least five times on surveillance reports generated by IBKR’s compliance department identifying customers who had more than 6 withdrawals or deposits in a given month.
The complaint alleges that IBKR officers encouraged analysts to close reviews of Park’s account when it appeared on surveillance reports and to use boilerplate language to document their decisions, including stating they found there were “no apparent third party deposits” and that “activity does not appear unusual,” so that Park’s trading activity would not trigger further investigation or monitoring.