By: Roger J. Buffington, Esq.
Buffington Law Firm’s business litigation and breach of contract attorneys recently won a resounding victory against Interactive Brokers LLC in a FINRA Arbitration action (Roger J. Buffington, Esq. and Rye Mhtar, Esq.). The case known as Lu v. Interactive Brokers LLC was the subject of a five day FINRA arbitration in late 2025 in which the Firm represented two investors who had been victimized by broker negligence and related breaches of duty. Interactive Brokers had taken the position that they were essentially nothing more than a platform for executing trades and owed no duties to its customers, e.g. the Firm’s clients, beyond accurate execution of trades. Interactive Brokers contended that it had no duty to supervise the propriety of the trades, whether the trades initiated by the clients’ registered representative conformed to the risk tolerance of the clients, or whether the trades represented a rational trading pattern. The Firm argued contrary to Interactive Brokers’ position. The Firm successfully argued that FINRA rules created a duty of care that required Interactive Brokers to maintain and exercise a compliance function whereby it was required to monitor client trades and exercise a supervisory duty of care. Despite repeated attempts by the Firm to negotiate a fair settlement, Interactive Brokers declined mediation or any meaningful settlement negotiations. Accordingly, the Firm brought the case forward to binding arbitration within the FINRA Arbitration Forum.
The Firm had earlier won a separate judgment in state court against the clients’ advisory stockbroker.
In this case the Firm’s clients’ investment consultant, who actually formulated the trades that led to the clients’ losses, did not work for Interactive Brokers. The agreement between Interactive Brokers and the client purported to exculpate Interactive Brokers from liability for any losses the clients might incur from negligent trading. The Firm successfully argued on the clients’ behalf that such exculpatory clauses were against public policy and unenforceable in California. [See e.g. City of Santa Barbra v. Superior Court (2007) 41 Cal. 4th 747, 777 (public policy precludes enforcement of an agreement that would remove an obligation to adhere to a minimal standard of care)]. The Firm further argued that Interactive Brokers was required to exercise and adhere to a duty of care and to take action when there are plainly “red flags” concerning the trading in a customer brokerage account for which Interactive Brokers is the custodian.
After a week-long FINRA arbitration, the 3 person Arbitration Panel awarded the Firm’s clients a six-figure recovery against Interactive Brokers. This award stands for the proposition that brokerage platforms such as Interactive Brokers, as FINRA members that are subject to FINRA rules, must maintain a responsible compliance program, monitor customer accounts and take action when there are clear indicators of malfeasance with the account. We hope that this decision will lead to more protection for customers of self-directed brokerage firms such as Interactive Brokers.
Buffington Law Firm has been handling business litigation, breach of contract, and investment disputes for over 25 years. If you have an investment dispute or claim of investment negligence or fraud, Buffington Law Firm’s business litigation team invites you to contact us for a free legal consultation. All consultations are with an experienced business litigation attorney, and are completely confidential and protected by the attorney-client privilege. And of course, there is never any obligation.