If you are a currency trader or retail investor who has suffered losses on margin with Interactive Brokers, you may be subject to arbitration brought by Interactive Brokers to recover the outstanding margin debt (also known as a “margin debit” balance) against you.
Interactive Brokers is one of the larger foreign currency exchange (FOREX) market brokers in the United States, operating a Forex trading platform allowing both retail and institutional clients to speculate on global foreign exchange markets in what is known as “margin forex trading”. Interactive Brokers LLC is a member NYSE, FINRA, and the SIPC and is regulated by the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Based on the recent increase in the strength of the Swiss francs against certain currencies, many of its clients suffered substantial investment losses (upwards of $120 million) which it may have to cover for an amount that is less than 3%. As a result, Interactive Brokers may try to recover the outstanding loan balances from its customers by filing arbitration proceedings to recover these outstanding margin debit balances and margin debts owed to it by their customers.
Trading currencies and engaging in Forex transactions generally carry high degree of risk. The potential risks and rewards of these transactions are amplified by the use of “margin”. Margin is a loan from a brokerage firm like Interactive Brokers to its customers, to help “leverage” the value of the currency transactions they place. As a general rule, the more leverage that is employed the greater potential returns an investor or trader may experience based on the amount of capital invested. In other words, the amount of margin may be small relative to the value of the foreign currency purchased. This means that if the market moves with the trader, they may proportionately larger gain on the funds invested. However, if the market moves against a trader, they may have losses that are greater in proportion to the total amount of money invested. If there is a significant market event, investors and currency traders using margin therefore can not only sustain a total loss of initial margin funds, but may be called upon to pay additional funds to maintain their position (a “margin call”). If the trader or investor does not satisfy the margin call, the brokerage firm may liquidate the trader’s position and will have the right to pursue the trader or investor for the unpaid balance (referred to as a “margin debit” or “margin debt”).
In fact, Interactive Brokers warns its traders and clients that it can force the sale of the securities in the customer accounts to cover any deficiency or shortfall, and that customers will be responsible for any unpaid margin debit or deficiency.
Interactive Brokers seeks repayment of the outstanding margin debit balance or margin debt, it may file an arbitration proceeding to recover the unpaid margin balance. In many cases, these arbitration proceedings are brought in the Financial Industry Regulatory Authority (FINRA) or the National Futures Association (NFA) arbitration forum, and may not be venued in a location near where the investor lives.
If you are subject to a FINRA arbitration or an NFA arbitration regarding an unpaid margin debit balance, certain defenses and offsets may be available to you. These defenses include standard contract defenses such as accord & satisfaction, offsets, payment, discharge in bankruptcy, real party in interest defense, unclean hands, res judicata, statute of limitations, fraud, good faith & fair dealing, mitigation & unfair enrichment, unconscionability, improper venue, as well as other claims or defenses under the Commodities Exchange Act (CEA) or other regulations. However, a skilled FINRA or NFA arbitration or commodities attorney can help you navigate the FINRA or NFA arbitration process to help give you the best possible resolution to your margin debt or margin debit arbitration.
If you are an investor or trader that is being sued by Interactive Brokers in margin debt or margin debit arbitration or lawsuit, please contact Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your legal rights.
Kons Law Offices represents investors nationwide in FINRA and NFA arbitration in commodities and securities litigation matters. To learn more about the Firm’s securities and commodities litigation and arbitration practice, please visit www.investmentlossattorney.com