Clients say Akron man's scam cost them millions. Is the brokerage firm he used liable?

When Constantine Antonas of Akron died by suicide in 2021 after his hedge fund clients alleged he lost them millions of dollars in fraudulent investments and illegal sales, the investors began taking legal action.

Now, the Ohio Supreme Court is considering whether Antonas' investors have stated a claim under Ohio law. The outcome could squash the lawsuit, but it could also determine whether the brokerage firm that Antonas operated through can be held liable.

Two attorneys argued before Ohio's highest court on Sept. 16, making their cases involving Interactive Brokers, a third-party middleman that handles the transactions and approves new investors who join its site, and over a dozen individuals and businesses who are seeking compensation.

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Representing Interactive Brokers, attorney James Saywell argued that the brokerage firm's actions did not break Ohio law.

"It was not active, and it was not culpable," Saywell told the justices, referring to state law and case law. "It has to collude with the seller or actively participate or aid in the sales. Interactive Brokers did no such thing."

But attorney Barton Keyes disagreed. By reviewing and approving Antonas' application, which he said had many "red flags," to trade using the Interactive Brokers name and platform, the firm was culpable.

"What they’ve done is they said, ‘Hey, before we are willing to serve as your broker for this hedge fund, we want to review and approve your offering documents,'" Keyes said. "At that point, Interactive Brokers was clearly on notice that the hedge fund manager, Mr. Antonas, was using their name to build credibility for his investment."

Epitome collapsed, losing millions of dollars

The case dates back to 2013 when a 20-year-old Antonas applied to Interactive Brokers to open a trading account under the name Epitome.

The documentation Antonas provided was riddled with errors and red flags, and he lacked proper licensing to be a qualified investment adviser, Keyes said.

Despite these issues, Keyes alleged, Interactive Brokers approved Antonas and allowed him to start trading.

Over the next eight years, Antonas provided false financial information to his investors. By 2021, a brokerage statement showed $78 million in Epitome, but when the investors requested an audit, only a small fraction of their money remained, according to court records.

On Oct. 4, 2021, investors had hoped to confront the 28-year-old hedge fund manager, but that meeting never happened. Antonas died by suicide that day, according to court records.

Keyes said the firm aided and participated in illegal activity by allowing Antonas to start trading and withdrawing more money than the firm usually allowed. Interactive Brokers received commissions from sales, he said.

Interactive Brokers also lent its name to Antonas, giving the unlicensed 20-year-old hedge fund manager credibility, Keyes argued.

Saywell asserted that, at most, the firm failed to act by not shutting down Antonas' ability to trade.

Saywell said there is no evidence that Interactive Brokers aided Antonas or participated in illegal sales. The firm, he said, can't be held liable for inaction under the Ohio Revised Code, which requires active participation in illegal conduct by a third-party entity, like a bank, to be held liable.

Why is the case before the Ohio Supreme Court?

The case was originally filed in Cuyahoga County in 2022, where Judge Kathleen Ann Sutula granted Interactive Brokers' motion to dismiss the case. The brokerage firm argued that the plaintiffs failed to state a claim under Ohio law.

In a 2-1 ruling, the Eighth District Court of Appeals ruled in favor of the investors. Judge Anita Laster Mays wrote that the investors' case had merit and there was reason to believe that if Interactive Brokers had acted sooner, the illegal activity may not have occurred. Judge Emanuella Groves concurred.

Judge Lisa Forbes dissented, saying there was insufficient evidence demonstrating that Interactive Brokers was actively participating in the sale of illegal securities.

During his oral argument, Keyes said the dismissal came before discovery took place.

"All the Eighth District has done is said, 'This case should proceed to discovery, and then we can figure out after that discovery is done, if there is conduct here that satisfies the statutory standard or not,'" he argued.

But Saywell argued that ruling in favor of the investors could "open the floodgates to liability for countless entities" like email providers, social media companies, landline companies and internet service providers.

"The Eighth District's theory is a 'but for' theory," he said. "It is not the case that any entity with any connection to the sale, including, for example, merely being listed in a sales document, can have played a sufficient role in the sale."

Bryce Buyakie covers courts and public safety for the Beacon Journal. He can be reached by email at [email protected] or on X, formerly known as Twitter, @bryce_buyakie.

This article originally appeared on Akron Beacon Journal: Clients say Akron man's scam cost them millions. Is the brokerage firm he used liable?