Ameritrade Faces Proposed Illegal Kickbacks Class Action Lawsuit

Last Thursday, TD Ameritrade was hit with an illegal kickbacks class action lawsuit alleging that the company unjustly profited by sending their customers’ trades to certain exchange companies and order internalizers that would allegedly pay Ameritrade the most in kickback fees.

TD Ameritrade is a popular online stock broker based out of Omaha, Neb., and is one of the largest trading companies within the United States. Last year alone, Ameritrade made approximately $2.7 billion in business revenues, a portion of which allegedly came from illegal business practices.

Lead plaintiff Jay Zola, a resident of Nebraska and an Ameritrade consumer, filed the TD Ameritrade class action lawsuit and claims that last year Ameritrade reaped $236 million in profits by violating the contract between the company and their consumers.

According to the illegal kickbacks class action lawsuit, the agreement signed by all Ameritrade clients states that the online broker “promises to ‘consider a wide variety of factors in determining where to direct [client] orders, such as execution price, opportunities for price improvement (which is when an order is executed at a price that is more favorable than the displayed national best bid or offer), market depth, order size and trading characteristics of the security, efficient and reliable order handling systems and market center service levels, speed, efficiency, accuracy of executions, and the cost of executing orders at a market[.]'”

Zola alleges that Ameritrade does not, in fact, “consider a wide variety of factors” when routing a client’s  order or considers the client’s best interest when considering exchanges. “Rather, as one of its own executives admitted in testimony before the United States Senate, TD Ameritrade routes ‘virtually all’ of its orders based on a single factor: what’s best for TD Ameritrade,” the Ameritrade class action lawsuit says. “That is, the TD Ameritrade executive admitted (and the data confirms) that TD Ameritrade has been routing virtually all of its customers’ orders through whichever order internalizer or exchange is willing to pay TD Ameritrade the most money to receive its order flow.”

The plaintiff claims that Ameritrade’s allegedly illegal business practices create a toxic trading system which only benefits Ameritrade, while the brunt of the cost is footed by their clients.

Zola goes on to allege that Ameritrade was able to conceal the illegal kickbacks by labeling these kickbacks received from their exchanges and order internalizers as “payment for order flow.”

In this Ameritrade illegal kickbacks class action lawsuit, Zola seeks to certify a Class of similarly disenfranchised Ameritrade clients, though the specifics of the Class have not yet been released.

Jay Zola is represented by Matthew Lathrop of Omaha, and Block & Leviton of Boston, MA.