How To Win A Case Against A Self-Directed Broker-Dealer

Nat DiCarlo was the RIA that submitted a 100% leveraged index  ETF on behalf of his client to Interactive Brokers.  This self-directed broker dealer accepted the RIA with 6 prior complaint, and failed to report them to the client, ,a senior investor.   The client expressed clearly that he wanted no leverage.  When the account lost over $800K, IB never reached out to the client or a trusted contact.  In fact the only trusted contact listed on IB’s books was the clients wife.  The clients had 2 adult son’s living in the area.  While IB contended that it had only had the duty to execute trades, they did accept the responsibility of account maintenance.   Since the new account profile reflected account objectives of growth and income (balanced) and a moderate risk tolerance, they had a duty to ensure that the investment objectives and risk tolerance matched the account implementation.  Clearly, the leveraged ETF portfolio  was speculative and not moderate.  Therefore, IB violated its account maintenance responsibilities in spite of arguing that we were asserting a suitability violation which they were not responsible for.   That was not the case!  We were arguing a violation of IB’s account maintenance responsibility. Then, one day before the client closed the account, IB unilaterally amended the risk tolerance to speculative, driving a nail in their coffin.  The award given by the panel w $150,000.  Note:  The IRA refused to submit to FiNRA arbitration jurisdiction and refused to appear.