Interactive Brokers (IBs) are in trouble.
The Securities and Exchange Commission (SEC) has launched an investigation into the platforms, accusing them of fraud and making the largest regulatory inquiry ever into broker-dealers.
The probe comes as brokers are bracing for a surge in demand for brokerage services that rely on a single platform to offer both trading and investment products.
The SEC is examining whether brokers have breached their fiduciary duty to customers by allowing themselves to sell products that do not meet the requirements of a securities law.
The commission said it is also examining whether broker-Dealers have broken securities law by failing to disclose conflicts of interest, whether brokers are providing ineffective marketing and if the brokers’ business practices are not aligned with those of investors.
A statement from the SEC said that “in conducting this investigation, the SEC has determined that IBs are engaging in fraud in the marketing of their products and the selling of their brokerage services to clients.”
It also found that IB’s use of an automated broker-based platform to manage investment portfolios was misleading to investors and that the platform failed to disclose a conflict of interest.
The investigation is being conducted by the SEC’s enforcement division, the division that enforces securities laws.
It is a first for the SEC, which has been investigating financial intermediaries for decades.
It began its probe in 2016, when the SEC issued a report accusing some brokers of manipulating investment portfolios to artificially inflate returns for clients.
That report prompted regulators to launch an inquiry into the business practices of the largest broker-mergers.
Since then, the Securities and Trading Commission has issued hundreds of public reports on financial products, including those dealing with securities and commodities.
The companies that offer brokerage services rely on software that uses algorithms to identify the value of stocks and other securities and determine the price to be paid for the asset.
A broker-client relationship is a key element of any brokerage business.
Broker-dealer agreements have long provided a level playing field for clients who want to buy and sell securities, including stocks.
But the SEC recently raised concerns about the practices of some IBs, accusing the companies of selling securities with false representations that are “unreasonably misleading.”
The commission, which began its investigation in December, is probing whether the companies misled investors about their investment portfolios and how the investments were managed.
The Commission said it will also look at whether IBs have failed to adequately disclose conflicts or conflicts of interests between their trading and other brokerage activities.
“The commission will investigate whether IB’s marketing and investment product sales have complied with their fiducial duty to investors,” the SEC statement said.
The agency has taken a number of actions to protect consumers from broker-broker interactions that appear unfair, deceptive or manipulative.
The regulators have barred certain brokers from offering broker-deals to customers and have sought to limit IBs’ ability to engage in marketing and investing activities that appear designed to manipulate the market.
The regulator also said that IB brokers are failing to adhere to their investment requirements and have failed their customers by failing not to disclose potential conflicts of loyalty between their clients and IBs.
The firms also face possible penalties from the Securities Exchange Commission, including fines.
SEC Chair Mary Jo White said she was encouraged by the investigation.
“As the regulator, I am especially pleased to hear that regulators are continuing to hold these companies accountable for their conduct,” White said.
“We need to make sure the financial institutions we regulate are not allowing their conduct to lead to unscrupulous and deceptive conduct.”
But some financial experts have said that the regulators’ actions have gone too far.
“I think the enforcement actions are overly broad,” said Brian Wachter, an analyst at Morgan Stanley who focuses on financial technology.
“There’s no doubt that some IB’s have broken the law.
I just don’t think they are breaking the law on a large enough scale to warrant the full enforcement action.”
The SEC’s probe comes on the heels of an SEC ruling last week that found that several IBs had misled investors in their sales of their investment-management products.
While the SEC investigation focuses on IBs and other broker-sellers, other regulators are also looking into the broker-selling practices of several other firms.
The Nasdaq-listed Brokerage Investment Corporation was ordered to pay $2.7 million to the SEC after it admitted that its brokers were engaging in improper practices that misled investors.
The other brokers that the SEC ordered to make $50 million payments included Fidelity, Vanguard, TD Ameritrade, and U.S. Bancorp.
The two regulators also ordered five brokers to pay an additional $1.6 million each to the Federal Deposit Insurance Corporation, the U.K. Office of Fair Trading and the SEC.
Both the SEC and SEC’s own investigations are still ongoing.
The new SEC probe has prompted the Financial Services Roundtable, a group of financial regulators that includes regulators from the Treasury Department and the Federal Reserve,