FINRA Arbitration Award Against Interactive Brokers

In June of 2024 Scott Greco represented a client who received a FINRA arbitration award of her full damages, interest, and attorney’s fees against Interactive Brokers regarding an unauthorized money transfer from the client’s account. The case involved the unauthorized access of the Virginia customer’s online account by criminals who transferred funds without the customer’s authorization to an account in the UK. Notably, Interactive Brokers (IB) took no responsibility for its actions and compliance failures and attempted to blame the customer. Read the award here.

FINRA securities brokerage firms such as Interactive Brokers have various duties under FINRA Rules and federal law to safeguard customer assets and guard against money laundering.

The U.S. Bank Secrecy Act (BSA) is set out in 31 U.S.C. Sec. 5311 – 5330. Securities Broker-Dealers such as IB are defined as a “financial institution” under the BSA. 31 U.S.C. Sec. 5312(a)(2).  “Money Laundering” is defined in 31 U.S.C. Sec. 5340 as “the movement of illicit cash or cash equivalent proceeds into, out of, or through the United States, or into, out of, or through United States financial institutions…”
The fraudulent theft of customer monies through unauthorized withdrawals/transfers by ACH or wire meets the definition of “money laundering” because it involves the movement of illicit cash through and out of United States financial institutions.
The Bank Secrecy Act requires financial institutions such as IB to develop and institute internal policies, procedures, and controls to “guard against” money laundering. Specifically, 31 U.S.C. Sec. 5318(h) requires:

“(h) Anti-Money Laundering Programs.—
(1) In general.—In order to guard against money laundering through financial institutions, each financial institution shall establish anti-money laundering programs, including, at a minimum—
(A) the development of internal policies, procedures, and controls;
(B) the designation of a compliance officer;
(C) an ongoing employee training program; and
(D) an independent audit function to test programs.”

FINRA Rules require IB and other member securities firms to comply with the BSA and associated regulations, and implement appropriate policies and procedures. Specifically, FINRA Rule 3310 states: “Each member shall develop and implement a written anti-money laundering program reasonably designed to achieve and monitor the member’s compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury.” FINRA Notice to Members 02-21 also advised broker-dealers “to look for signs of suspicious activity that suggest money laundering” – or, “red flags” – and if they detect “red flags,” to “perform additional due diligence.”

Interactive Brokers was censured and fined $15,000,000.00 by FINRA in 2020 in a letter of Acceptance, Waiver, and Consent (AWC) for “deficient” Anti-Money Laundering procedures and procedures/supervision relating to money transfers. IB’s documented failures therein included the same situation as the arbitration above – “[IB] did not reasonably surveil for AML purposes outgoing wire transfers identified as “first-party” transfers (i.e., transfers where the recipient was the customer itself), because the Firm accepted customers’ designations that they were first-party wire transfers, even when the Firm learned that some purportedly “first-party” wires were, in fact, third-party wires.”

Greco & Greco has been representing harmed investors against their securities brokerage firms for over twenty-five years. If your investment firm has transferred monies from your account to criminals or scammers without your knowledge or consent, please contact Virginia Securities Fraud Lawyer Scott Greco for a free consultation about your potential case.