Interactive Brokers refuses to produce communications with regulators about Ponzi scam

About a month after electronic trading major Interactive Brokers was hit with another complaint over its alleged aiding of the Ponzi scam orchestrated by Haena Park, the broker has made it clear that it is not inclined to produce all of the documents sought by the plaintiff. This is made evident by documents submitted by Interactive Brokers at the California Northern District Court on February 4, 2022.

Plaintiff Benjamin Chang was introduced to Park through family members and was one of the people from whom Park solicited funds. He provided Park approximately $167,000 to invest and Park represented to Plaintiff it would be invested in Forex. Park sent Plaintiff statements indicating his investment was growing when in fact his funds had been lost, redirected to other investors as Ponzi-style dividend payments, or used for Park’s personal benefit.

Chang 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 specified herein for harm caused by IBKR aiding and abetting fraud and aiding and abetting breach of fiduciary duties.

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.

Now, Interactive Brokers has made it clear that it does not plan to satisfy all document requests made by the plaintiff. Specifically, Chang sought from Interactive Brokers:

• all documents Interactive Brokers provided to any regulatory authority . . . in connection with any investigation of Haena Park or the Haena Park Ponzi scheme;
• documents sufficient to show all communications between Interactive Brokers and any regulatory authority . . . in connection with any investigation of Haena Park or the Haena Park Ponzi scheme, and
• transcripts of all depositions or interviews of IBKR current or former personnel conducted in connection with any investigation related to Haena Park.

According to Interactive Brokers, Chang’s document requests inflict an undue burden on the company, especially given the procedural posture of this case. The Court has already granted Defendant IBKR’s first motion to dismiss and identified various deficiencies in Plaintiff’s initial complaint. On Monday, February 7, Defendant IBKR intends to file a motion to dismiss with prejudice Plaintiff’s First Amended Complaint (the “FAC”), which, according to the broker, fails to cure the deficiencies identified by the Court in Plaintiff’s initial complaint. Given IBKR’s forthcoming motion to dismiss the FAC, which would dispose of the entire case, the defendant submits that any discovery is unduly burdensome while its motion to dismiss is pending.

Interactive Brokers adds that the burden of identifying and producing documents and communications responsive to Chang’s document requests is compounded by the passage of time—the events at the heart of this case took place more than five years ago. Chang is said to have severely underestimated this burden.

IBKR seeks a protective order relieving it of the obligation to search for and produce documents responsive to Chang’s Document Requests or other requests propounded by the plaintiff, while the motion to dismiss the first amended complaint is pending.