TD Ameritrade Securities Cases Get Kicked Back

By William Vogeler, Esq. on May 21, 2018 | Last updated on March 21, 2019

A "bung," in the English vernacular, is a payment made to someone to do something dishonest.

Like "kickback," it has its origins in football. Some speculate it started with cheating in exchange for "snuff, moustache wax and several pints of pale ale."

Some two hundred years later, a kickback and a bung seem wrong by any definition. In any case, the U.S. Eighth Circuit Court of Appeals said three kickback cases based on state laws certainly don't belong in federal court.

'Kickback Scheme'

In Zola v. TD Ameritrade, the appeals court dismissed three class actions against TD Ameritrade for allegedly violating securities laws in a kickback scheme. The plaintiffs said the company sent clients to traders that paid it the most, rather than to venues that offered the best for its clients.

However, the appeals court said, the Securities Litigation Uniform Standards Act precludes state law claims over securities. It covers claims of misrepresentations or omissions of material facts "in connection with the purchase or sale of a covered security."

Even though the allegations may not say "misrepresentation or omission," the Eighth Circuit said courts look at the substance of the claims. The allegations were "grounded in TD Ameritrade's failure to disclose," the appeals panel said.

In any case, the judges said, the complaint involved securities covered by the Act. "TD Ameritrade garnered rebates and payments whenever it routed orders to buy or sell securities for its clients," Judge Wollman wrote for the court in affirming the dismissal.

'Paid Handsomely'

According to the complaints, TD Ameritrade maximized its rebates and payments by routing orders to trading venues where high-frequency traders could manipulate and exploit the orders.

"Those trading venues paid TD Ameritrade handsomely for its order flow," the Eighth Circuit recited.

In one complaint, for example, TD Ameritrade directed more than 90 percent of its orders from 2011 through 2013 to venues that paid back more than $600 million for the orders.

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