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Interactive Brokers, LLC v. Barry

Superior Court of New Jersey, Appellate Division

December 31, 2018

INTERACTIVE BROKERS, LLC, and KEVIN MICHAEL FISCHER, Plaintiffs-Appellants,
v.
RICHARD W. BARRY, as Receiver for Osiris Fund Limited Partnership, Defendant-Respondent.

          Argued October 31, 2018

          On appeal from Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-000036-18.

          Kevin H. Marino argued the cause for appellants (Marino, Tortorella & Boyle, PC, attorneys; Kevin H. Marino, John D. Tortorella, and Erez J. Davy, on the briefs).

          Thomas W. Halm, Jr. argued the cause for respondent (Halm Law Group, LLC, attorneys; Thomas W. Halm, Jr. and Patricia A. Lauch, of counsel and on the brief).

          Brian F. McDonough, Assistant Attorney General, argued the cause for amicus curiae Chief of the New Jersey Bureau of Securities (Gurbir S. Grewal, Attorney General, attorney; Brian F. McDonough, of counsel; Katherine A. Gregory, Deputy Attorney General, on the brief).

          Before Judges Koblitz, Currier, and Mayer.

          CURRIER, J.A.D.

         In this matter, arising out of securities law violations, we conclude that a receiver acting on behalf of a defrauded entity may initiate arbitration even if the defrauded investors of the entity will ultimately benefit from any assets recouped in arbitration.

         After the New Jersey Attorney General discovered Osiris Fund Limited Partnership (Osiris), a hedge fund founded by Peter Zuck, perpetrating a Ponzi scheme which defrauded its investors of more than $6.5 million, the Attorney General instituted suit against Zuck and Osiris. Osiris operated through the securities trading platform of plaintiff Interactive Brokers, LLC (Interactive), and plaintiff Kevin Michael Fisher, as an Interactive employee, assisted Osiris in using Interactive's platform.

         Under a consent order, Zuck was determined to have violated securities laws and defrauded investors, and he was ordered to pay restitution of $7, 564, 273. Defendant Richard Barry (the Receiver) was appointed as receiver for Osiris.

In the appointment order, the Receiver was permitted to:
immediately take into possession and take title to all real and personal property of [Osiris] . . . including . . . causes of action and all such assets obtained in the future, and undertake all actions necessary or appropriate to maintain optimal value of these assets, including liquidation of any such assets.

         To carry out these duties, the Chancery court granted the Receiver "full statutory powers . . . to perform the receiver's duties, including the powers delineated in N.J.S.A. 49:3-69(c)[1] and (d)[2] and . . . those set forth in N.J.S.A. 14A:14-1 [to -27] or so far as the provisions thereof are applicable."

         In 2017, the Receiver, as the sole claimant acting on behalf of Osiris, filed a Statement of Claim (Statement) against plaintiffs and initiated Financial Industry Regulatory Authority (FINRA) arbitration proceedings. The Statement listed seven causes of action including: 1) negligence and/or failure to supervise; 2) breach of implied/express contract, implied duty of good faith and fair dealing and industry rules; 3) aiding and abetting breach of ...


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