New York Securities Lawyer Blog
On September 18, 2017, Lax & Neville LLP was appointed special securities litigation counsel for court-appointed Receiver, Richard W. Barry, in an action commenced by the Attorney General of New Jersey on behalf of the Chief of the New Jersey Bureau of Securities. The action alleged securities fraud in the sale of securities, as well as other violations of the New Jersey Uniform Securities Laws, by defendants Osiris Fund Limited Partnership (a hedge fund), Peter Zuck, and others. State of New Jersey, et al. v. Peter Zuck, et al., Docket No.: HDU-C-125-12.
The Receiver—who was empowered to pursue actions on behalf of the receivership estate to recover assets for the benefit of defrauded investors, victims, and creditors—filed a motion to approve the retention of Lax & Neville LLP as special securities counsel to assist the Receiver in his duties and seek relief on behalf of those defrauded. Given the sophisticated nature of the securities-related issues, the Receiver sought to retain a law firm with specialized skill, knowledge and experience in securities law and arbitration. Lax & Neville LLP’s retention as special securities counsel was approved by court order on September 18, 2017.
On December 30, 2017, Lax & Neville LLP commenced a Financial Industry Regulatory Authority (“FINRA”) arbitration claim on the Receiver’s behalf against Interactive Brokers and Kevin Michael Fischer, who is the head of Interactive Brokers LLC’s block trading desk. The FINRA arbitration concerned the collapse of Osiris Fund, a fraudulent Ponzi scheme orchestrated by Peter Zuck, a convicted felon who was banned from the securities industry (specifically, the National Futures Association (“NFA”)) fifteen years before he opened accounts with Fischer at Interactive Brokers. The Receiver’s Statement of Claim alleged that, from April 2009 through December 2011, Interactive Brokers ignored numerous red flags, including obviously fraudulent account opening documents, suspicious fund transfers, ludicrously high “management fees,” and hundreds of e-mails and hours of recorded phone calls between Osiris Fund’s employees and Fischer. The Receiver further alleged that Interactive Brokers and Fisher became instrumental to the scheme, with Interactive Brokers providing substantial participation in the form of what was apparently a completely unsupervised platform that gave Osiris Fund credibility with Investors, and with Fischer participating substantially in marketing and solicitating new investors, recommending securities, directing Osiris Fund’s employees, and at times managing Osiris Fund’s investments himself. The Receiver alleged that Interactive Brokers, Fisher, and Osiris Fund defrauded approximately 72 investors out of approximately $6.5 million.
On March 22, 2018, Interactive Brokers and Fisher moved by Order to Show Cause seeking injunctive relief restraining the Receiver from pursuing claims brought against them in the pending FINRA arbitration proceeding. Interactive Brokers and Fisher also sought declaratory relief that the Receiver’s filing a Statement of Claim in the FINRA arbitration overstepped the scope of authority granted to him by the Court in its Order appointing him as Receiver. In opposition to Interactive Brokers and Fisher’s Application for the Entry of an Order to Show Cause, Lax & Neville LLP filed a Cross-Motion on the Receiver’s behalf on April 24, 2018 seeking to compel arbitration and dismiss the case with prejudice. By Order, dated May 16, 2018, the Superior Court, Chancery Division denied the relief sought by Interactive Brokers and Fisher and granted the Receiver’s Cross-Motion, compelling the parties to continue with the pending FINRA arbitration and dismissing this case with prejudice.
On July 6, 2018, Interactive Brokers and Fisher appealed the Superior Court, Chancery Division’s decision before the Superior Court, Appellate Division. On December 31, 2018, the Appellate Division affirmed the Chancery Division’s May 16, 2018 Order dismissing the case and compelling the continuation of arbitration.
Interactive Brokers, Fisher, and the Receiver ultimately entered into an agreement resolving all of the Receiver’s claims against Interactive in the FINRA arbitration.
The New Jersey Bureau of Securities and Interactive Brokers also entered into a Consent Order in connection with any accounts held by the Osiris Fund and Peter Zuck. Pursuant to the Consent Order, the New Jersey Bureau of Securities found that “Interactive Brokers’ failure to conduct the NFA BASIC search during the account opening process for Zuck and Osiris-related accounts constitutes failure to reasonably supervise pursuant to N.J.S.A. 49:3-58(a)(2)(xi).” Consent Order. Interactive Brokers was also assessed a civil monetary penalty in the amount of $100,000.
Lax & Neville LLP has extensive experience in securities arbitration and investment fraud litigation, and as special securities counsel to receivers and trustees.