Interactive Brokers LLC v. Saroop, No. 19-1077 (4th Cir. 2020)Annotate this Case
Investors filed a claim with FINRA's arbitration division seeking to recover substantial losses from Broker, alleging nine causes of action. Broker counterclaimed, seeking payment of the debt and attorneys' fees. The arbitration panel found in favor of Investors and dismissed Broker's counterclaim. The arbitrators then issued a modified award on remand. The district court subsequently granted Broker's motion to vacate the modified award in favor of the Investors and remanded Broker's counterclaim to a new panel of arbitrators. Investors timely appealed.
The Fourth Circuit held that the district court erred in vacating the modified award where the arbitrators' imposition of liability against Broker is not in manifest disregard to the law. The court explained that imposing liability based on a contractual obligation to comply with the FINRA rules is, at the very least, an arguable interpretation of the parties' contracts. In this case, Broker executed trades of iPath S&P 500 VIX Short-Term Futures (VXX) on Investors' portfolio margin accounts, in clear violation of FINRA Rule 4210. Rule 4210 prohibits trades of certain high-risk securities through portfolio margin accounts, including trades of VXX. The court also held that the arbitration panel did not manifestly disregard the law by imposing damages in the amount of Investors' accounts on August 19, 2015. In light of Connecticut law, the court reasoned that the award placed Investors in the position they would have been if the contracts had been properly performed after August 19. Finally, the arbitration panel did not manifestly disregard the law by awarding Investors attorneys' fees. Accordingly, the court vacated and remanded with instructions to confirm the modified arbitration award.