CHICAGO (CN) – A couple may sue TD Ameritrade after it permitted their investment adviser to open an account in their name with forged signatures and a false address, then spent all the money, a federal judge ruled.
Young Soon Kim and Il Joo Kim claimed that an investment advisor, Peter Cho, convinced them to invest in a group of 200 two-flat homes with other investors.
The investment required a contribution of $550,000. As a down payment, the Kims liquidated a mutual fund account for $123,217 and wrote Cho three checks totaling $187,035.
However, instead of investing the money, Cho opened a TD Ameritrade account in the Kims’ names without their knowledge.
TD Ameritrade is an online broker based in Omaha, Nebraska that claims to have 5.7 million clients with total assets of $452 billion.
Federal law requires financial institutions to verify identifying information on new account applications. However, Cho successfully opened a TD Ameritrade account, although the address and signatures he provided did not match those on the checks used to open the account.
Between September 2008 and March 2009, Cho almost depleted the account by writing checks to himself and by trading stocks online.
The Kims learned of the account from their own bank in April 2009, reported the fraud to TD Ameritrade, and demanded their money back.
When TD Ameritrade refused to return the Kims’ money as requested, the couple sued in the Northern District of Illinois.
U.S. District Judge Elaine Bucklo granted the broker’s motion to dismiss Kims’ conversion claim, but not their claim that TD Ameritrade improperly charged their account.
“Because plaintiffs were the issuers of the checks, they cannot, according to the plain language of the statute, bring an action for conversion,” Bucklo said.
However, the judge found that “plaintiffs have pled facts that raise an issue as to whether defendant was acting as a securities intermediary or performing bank-like functions when it allowed Cho to use plaintiffs’ checks to open and fund the account or later to draw on the account,” Bucklo said.
Regarding the Kims’ second claim, TD Ameritrade argues that it had no customer relationship with the Kims, but “defendant cites no law and does not address the fact that it acted as if the Kims were its customers. The TD Ameritrade account was, after all, created in their names and funded using their money,” the judge noted.
In addition, Bucklo rejected the broker’s assertion that “plaintiffs cannot show that defendant caused their losses because Cho would have traded away the funds if the bank had prevented him from writing checks or otherwise withdrawing funds from the
TD Ameritrade account. Defendant fails to support this entirely speculative argument or to address why Cho’s trading would necessarily not constitute a ‘charge.'”Bucklo held that TD Ameritrade may not raise the issue of Kims’ own negligence in the matter until summary judgment. “The issue of plaintiffs’ negligence goes beyond the face of the complaint,” she said.