Karnani v. Interactive Brokers, LLC.
1:25-cv-00462
E.D. Va.May 30, 2025Background
- Jaivin Karnani held 2,332 out-of-the-money Tesla put options via a brokerage account at Futu, Inc. (now Moomoo Financial Inc.), which used Interactive Brokers LLC (IBKR) as its clearing broker.
- On December 31, 2020, Futu forcibly liquidated Karnani’s options based on IBKR’s automated risk alert, resulting in alleged lost potential gains of over $3 million.
- Karnani previously arbitrated his dispute against Futu and lost; the arbitration panel denied all his claims.
- More than four years after the liquidation, Karnani sued IBKR in federal court, alleging negligence, vicarious liability, fraud, breach of contract (as third-party beneficiary), and other claims.
- IBKR moved to dismiss all claims; the court granted the motion after full briefing and oral argument.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of Limitations | Discovery rule delayed accrual due to delayed knowledge of IBKR's role | Claims are time-barred; knowledge evident from arbitration testimony | Claims for fraud, VCPA, conspiracy, VSA, fiduciary duty are time-barred |
| Negligence & Gross Negligence | IBKR owed a duty to him as an investor in Futu’s omnibus account | Clearing brokers owe no duty to individual customers of introducing brokers | No duty owed; claims dismissed |
| Vicarious Liability | IBKR is liable for Futu’s acts because of control over liquidation | Prior arbitration judgment against Futu bars these claims (res judicata) | Barred by res judicata; claim dismissed |
| Breach of Contract (Third-party Beneficiary) | Plaintiff is an intended third-party beneficiary to IBKR-Futu contract | Contract disclaims third-party beneficiaries, no intent to benefit plaintiff | Not a third-party beneficiary; claim dismissed |
Key Cases Cited
- Blue Ridge Serv. Corp. v. Saxon Shoes, 271 Va. 206 (elements of negligence under Virginia law)
- Jones v. Shooshan, 855 F. Supp. 2d 594 (E.D. Va. 2012) (no discovery rule for fiduciary duty under Virginia law)
- Kelley v. Griffin, 254 Va. 494 (third-party beneficiary status under Virginia law)
- Ross v. Bolton, 904 F.2d 819 (2d Cir. 1990) (clearing brokers owe no fiduciary duty to customers of introducing brokers)