The Ohio Supreme Court ruled on June 18, 2026, that brokerage firms cannot be held liable for a customer's unlawful sale of securities if the firm only performed routine business activities after the sale was completed. This decision affects investors who may seek to hold brokerage firms accountable for losses incurred in such transactions.
The case, Bitounis v. Interactive Brokers, L.L.C., (Docket No. 2024-1290) involved 21 investors who claimed they lost money investing in a hedge fund managed by Constantine Antonas. The investors alleged that Interactive Brokers (IB) aided in the unlawful sales by providing brokerage services, including account setup and compliance checks, after Antonas had already sold the securities illegally.
The dispute arose after Antonas, who was not registered as an investment adviser, operated the Epitome Investment Fund, L.P. from 2015 to 2021. He raised about $25 million from investors, promising high returns while failing to comply with securities regulations. After Antonas's death in 2021, the investors turned to IB, claiming the brokerage firm should be liable for the losses they incurred.
The investors argued that IB's involvement in reviewing the fund's Private Placement Memorandum (PPM) lent legitimacy to Antonas's scheme. However, IB contended that its actions were limited to routine brokerage functions and that it did not participate in or aid the unlawful sales.
The trial court initially dismissed the investors' complaint, but the Eighth District Court of Appeals reversed that decision, allowing the case to proceed. IB then appealed to the Ohio Supreme Court, which accepted the case to clarify the liability standards under Ohio law.
In its ruling, the Ohio Supreme Court concluded that R.C. 1707.43(A) does not extend liability to brokerage firms that only perform routine business activities after an unlawful sale. The court stated, "We conclude that R.C. 1707.43(A) does not extend liability to brokerage firms whose routine business activities were performed after the unlawful sale of securities was complete." This ruling reinstated the trial court's dismissal of the investors' amended complaint.
Judge Shanahan authored the opinion, joined by Chief Justice Kennedy and Justices Fischer, DeWine, Deters, and Hawkins. Justice Brunner dissented, arguing that the case should have been allowed to proceed to trial for further factual development.
The court's decision clarifies that for a brokerage firm to be held liable under R.C. 1707.43(A), there must be a direct connection between the firm's conduct and the unlawful sale of securities. The ruling emphasizes that routine brokerage services, performed after the fact, do not constitute participation or aiding in the unlawful sale.
This ruling has significant implications for investors and brokerage firms alike. It sets a precedent that limits the liability of brokerage firms in cases involving unlawful securities sales, potentially affecting how investors approach claims against such firms in the future. Investors may need to consider other avenues for recourse when dealing with losses from unregistered securities.
As for what’s next, the ruling can potentially be appealed to the U.S. Supreme Court, but details were not available in the court filing regarding any related cases pending. The decision may prompt further discussions on the responsibilities of brokerage firms and their role in monitoring the activities of their clients.