INTERACTIVE BROKERS LLC v. << (2026)

Tanya R. Kennedy, J.P.

David Friedman

Ellen Gesmer

Marsha D. Michael, JJ.

Appeal No. 6935

Index No. 659407/24

Case No.2025–08114

David A. Castleman, etc.,

Plaintiff–Appellant,

-against-

Interactive Brokers LLC,

Defendant–Respondent.

Plaintiff appeals from an order of the Supreme Court, New York County (Anar Rathad Patel, J.), entered December 9, 2025, which granted defendant's motion to dismiss the complaint.

MICHAEL, J.

The Supreme Court correctly found that under Kirschner v. KPMG LLP (15 NY3d 446 [2010] ), the equitable defense of in pari delicto bars plaintiff's claims, and the adverse interest exception does not apply, warranting dismissal of the complaint.

On May 11, 2022, the Commodity Futures Trading Commission (CFTC) filed a civil complaint in the United States District Court, Southern District of New York against EminiFX, Inc. and Eddy Alexandre, the company's sole owner and its Chief Executive Officer.  The complaint alleged that Alexandre operated EminiFX as a Ponzi scheme.  On the same day the CFTC complaint was filed, the district court (Valerie E. Caproni, J.) appointed plaintiff as a temporary receiver “for Defendant EminiFX, Inc. and its affiliates and subsidiaries owned or controlled by Defendant EminiFX, Inc. and all customer funds and property and other assets traceable to customers in the possession of or under the control of Eddy Alexandre (hereinafter referred to as the ‘Receivership Defendants').”  The order permits plaintiff to (i) assume full control of the Receivership Defendants by removing Alexandre and EminiFX and any officer or agent of the Receivership Defendants, from control and management of the affairs of the Receivership Defendants;  (ii) prevent irreparable loss, damage, or injury to any customers or clients of any of Receivership Defendants' business activities;  (iii) collect all funds owed to the Receivership Defendants;  and (iv) initiate lawsuits necessary to preserve or increase the value of the receivership estate.  The district court's subsequent June 2022 order appointed plaintiff as the permanent receiver for EminiFX and its affiliates and subsidiaries owned or controlled by EminiFX, and incorporated the terms of the temporary receivership order.

Plaintiff later removed EminiFX's leadership, took control of the business, and commenced this action against Interactive Brokers LLC (IBKR) to recover damages.  Plaintiff brought causes of action for gross negligence, negligence, and aiding and abetting breach of fiduciary duty against IBKR.

Plaintiff alleges that beginning in December 2021 through January 2022, Alexandre transferred at least $9 million of customers' deposits from EminiFX to his personal bank accounts.  Within days of those transfers, Alexandre transferred the funds to his personal investment account at IBKR, which IBKR then approved for trading.  The deposits consisted of $1 million on December 30, 2021;  $2 million on January 12, 2022;  and $6 million on January 26, 2022.  These deposits were significantly larger than prior deposits into Alexandre's IBKR account, which generally ranged between $10,000 and $20,000.

Plaintiff further alleges that at the time IBKR permitted Alexandre to invest the large deposits, Alexandre applied to open an EminiFX corporate account with IBKR. He informed IBKR that he intended to fund the corporate account with the deposits made to his personal IBKR account.  IBKR denied the application after Alexandre described EminiFX as an “investment club” and failed to provide sufficient basic information about the company.

Plaintiff alleges that any meaningful due diligence or investigation into EminiFX by IBKR would have or should have uncovered that EminiFX was being operated as a Ponzi scheme based on (i) its promises to potential participants that they would receive outsized, nonsensical returns;  (ii) Alexandre's ultra-risky investments;  and (iii) the large deposits into Alexandre's IBKR account that substantially diverged from the account's transactional history.

Finally, plaintiff alleges that despite knowing that Alexandre was trading with EminiFX customer funds and having acknowledged in March 2022 that Alexandre's trading activity was “of a type that may draw scrutiny from exchanges and/or regulators,” IBKR merely froze certain of Alexandre's option positions, leading to losses of more than $7 million of EminiFX customer funds in Alexandre's IBKR account.  As of July 6, 2022, only $1,752,994.40 remained in Alexandre's personal IBKR account for plaintiff to recover.

IBKR moved to dismiss the complaint pursuant to CPLR 3211(a)(1), (a)(3) and (a)(7), arguing, as relevant here, that the action should be dismissed in its entirety on the ground that the doctrine of in pari delicto (“in equal fault”) prevents the receiver, who stands in EminiFX's shoes, from holding IBKR liable.

Plaintiff countered that the in pari delicto defense should not apply to an innocent successor like an equity receiver seeking to recover on behalf of EminiFX's innocent investors and creditors.  Plaintiff further contends that even if the doctrine applies, there is an issue of fact as to the applicability of the “adverse interest” exception to in pari delicto.

Supreme Court granted IBKR's motion on the ground of in pari delicto, relying on the Court of Appeals' holding in Kirschner.  The court rejected plaintiff's argument and found that the adverse interest exception did not apply where, as here, the wrongdoing agent (Alexandre) was the sole owner of the principal (EminiFX) at the time of the misconduct.  We agree and hold that plaintiff's claims are precluded by the in pari delicto doctrine and the adverse interest exception does not apply.

The common law doctrine of in pari delicto “mandates that the courts will not intercede to resolve a dispute between two wrongdoers” (Kirschner, 15 NY3d at 464).  In other words, the doctrine bars a corporation engaged in wrongdoing from suing its co-conspirators on the grounds of negligence or fraud (see In re Tribune Co. Fraudulent Conveyance Litig., 10 F4th 147, 168 [2d Cir2021], cert denied Kirschner v. FitzSimons, 142 S Ct 1128 [2022];  In re Bernard L. Madoff Inv. Sec. LLC, 721 F3d 54, 63 [2d Cir2013], cert dismissed in part Picard v JPMorgan Chase & Co., 573 U.S. 901 [2014], cert denied Picard v. HSBC Bank PLC, 573 U.S. 945 [2014] ).  “The justice of the in pari delicto rule is most obvious where a willful wrongdoer is suing someone who is alleged to be merely negligent” (Kirschner, 15 NY3d at 464).  The notion that “a wrongdoer should not profit from his own misconduct is so strong in New York that we have said the defense applies even in difficult cases and should not be weakened by exceptions” (id. [internal quotation marks omitted] ).

The wrongdoer's misconduct is not only imputed to the corporation through the bad acts of its officers (see In re Tribune Co. Fraudulent Conveyance Litig., 10 F4th at 167), but also to the corporation's successors (see In re Bernard L. Madoff Inv. Sec. LLC, 721 F3d at 63 [“The [wrongdoer's] misconduct is imputed to the trustee because, as innocent as he may be, he acts as the [wrongdoer's] representative”] ).

In Pari Delicto Applies to Equity Receiver

Plaintiff argues, and the dissent agrees, that the in pari delicto doctrine does not apply to plaintiff because he is not a derivative shareholder plaintiff or a bankruptcy trustee appointed pursuant to 11 USC § 541, but rather a receiver appointed pursuant to 28 USC § 3103.  It is true that plaintiff, as a receiver, is not subject to section 541 of the Bankruptcy Code. Nevertheless, there is no significant difference between bankruptcy trustees and nonbankruptcy receivers for purposes of in pari delicto (see Caplin v Marine Midland Grace Tr. Co. of New York, 406 U.S. 416, 429 [1972] [recognizing that a bankruptcy trustee performs functions similar to those of a receiver] ).

The Bankruptcy Code defines the bankruptcy estate as “all legal or equitable interests of the debtor in property” and authorizes bankruptcy trustees to pursue claims on behalf of the estate to preserve or maximize the value of the estate and returns for creditors (see 11 USC § 541;  11 USC § 323;  Commodity Futures Trading Comm. v Weintraub, 471 U.S. 343, 352 [1985] ).  Similarly, the federal receivership statute grants receivers the authority to “take possession of real and personal property and sue for, collect, and sell obligations upon such conditions and for such purposes as the court shall direct” (28 USC § 3103;  see 28 USC § 754).  Both bankruptcy trustees and federal receivers are representative fiduciaries who take control of the entity's assets and pursue claims on its behalf for the benefit of innocent creditors or investors.  There is thus no basis to differentiate bankruptcy trustees from receivers when applying in pari delicto.

Application of the doctrine to receivers is not novel.  Courts have applied in pari delicto to receivers seeking tort damages against third parties (see Cobalt Multifamily Inv. I, LLC v Shapiro, 857 F Supp 2d 419, 424 [SD N.Y.2012] [applying in pari delicto to the receiver's suit against three law firms that allegedly “assisted the Cobalt Principals in committing investor fraud”];  Williamson v. Pricewaterhousecoopers, LLP, 2007 WL 5527944, *1 [Sup Ct, N.Y. County, Nov. 7, 2007] [“(G)enerally, courts do apply in pari delicto against a receiver or non-bankruptcy trustee when the claim does not involve a fraudulent conveyance”];  Knauer v Jonathon Roberts Fin. Group, Inc., 348 F3d 230, 236 [7th Cir2003] [applying in pari delicto where the receiver “who stands precisely in the shoes of the corporations for which he has been appointed” sought to recover “tort damages from entities that derived no benefit from the embezzlements, but that were allegedly partly to blame for their occurrence”];  Myatt v. RHBT Fin. Corp., 370 SC 391, 397 [Ct App 2006] [applying in pari delicto where “the receiver of a corporation used to perpetuate fraud” sought tort damages against a bank that “handled the accounts exactly as it was bound to do pursuant to the account agreements”] ).  Here, plaintiff receiver, acting on behalf of the corporate malefactors, seeks damages against an alleged third-party co-conspirator accused of negligence.  His tort claims against IBKR therefore fall squarely within the doctrine.1

Kirschner Is Dispositive

The dissent argues that the doctrine does not apply because plaintiff “brings this action solely for the benefit of innocent investors.”  However, this argument was expressly rejected by the Court of Appeals in Kirschner and is unavailing in light of the nature of plaintiff's role as a receiver.  In Kirschner, the plaintiffs (the trustee and derivative shareholders) asked the Court of Appeals “to reinterpret New York law so as to broaden the remedies available to creditors or shareholders of a corporation whose management engaged in financial fraud that was allegedly either assisted or not detected at all or soon enough by the corporation's outside professional advisors, such as auditors, investment bankers, financial advisers and lawyers” (Kirschner, 15 NY3d at 457).  Specifically, the plaintiffs asked the Court to “revise New York precedents relating to in pari delicto or imputation for reasons of public policy ․ to recompense the innocent and make outside professionals ․ responsible for their negligence and misconduct in cases of corporate fraud” (id. at 469).

The Court declined to do so, holding that “[t]he principles of in pari delicto and imputation, with its narrow adverse interest exception, which are embedded in New York law, remain sound” (id. at 477).  The Court considered the impact of the doctrine on the interests of the corporate fraudsters' innocent stakeholders versus the third-party entities' innocent stakeholders who were not involved in allegedly aiding and abetting the fraudulent conduct.  The Court determined that to reimagine the doctrine would “create[e] a double standard whereby the innocent stakeholders of the corporation's outside professionals are held responsible for the sins of their errant agents while the innocent stakeholders of the corporation itself are not charged with knowledge of their wrongdoing agents” (id. at 475).  Ultimately, it was not persuaded that altering New York's precedent “to expand remedies for these or similarly situated plaintiffs would produce a meaningful additional deterrent to professional misconduct or malpractice” (id. at 476).  Based on this analysis, the Court held that the trustee's status as a representative fiduciary acting for the benefit of innocent creditors did not exempt him from the doctrine.  Although the claims here are asserted by a receiver, Kirschner's holding applies to this case.

The Second Circuit has held that Kirschner, as a general matter, has settled the question of whether the in pari delicto doctrine precludes a corporation engaged in wrongdoing from suing (on its own behalf or by a successor entity) its co-conspirators for negligence (see In re Tribune Co. Fraudulent Conveyance Litig., 10 F4th at 168).  While In re Tribune involved a claim by a bankruptcy trustee, the same has been found with respect to claims brought by a trustee appointed under the Securities Investor Protection Act (SIPA) for the benefit of victims of Bernie Madoff's scheme (see In re Bernard L. Madoff Inv. Sec. LLC, 721 F3d at 63).  The Second Circuit held that the SIPA-appointed trustee could not bring suit against the third-party financial institutions which aided and abetted the fraud despite the trustee's assertion that any funds recovered would benefit blameless unsecured creditors and shareholders (see id. at 64 [plaintiff “stands in the shoes of BLMIS and may not assert claims against third parties for participating in a fraud that BLMIS orchestrated”] ) 2;  see also Bullmore v. Ernst & Young Cayman Is., 20 Misc.3d 667, 677–678 [Sup Ct, N.Y. County 2008] [rejecting liquidator's assertion that the negligence claim against the third party auditor should be permitted because “[as] innocent successor-in-interest ․ the ultimate beneficiaries of any recovery would be for the benefit of the innocent investors,” and dismissing the complaint based on lack of standing under the Wagoner rule 3 and in pari delicto] ).

Plaintiff is a representative of the corporation and stands in its shoes, as the subject order specifically appointed the receiver “for ․ the Receivership Defendants,” not the innocent customers/investors.  The complaint acknowledges that the June 2022 order “appointed [plaintiff] as the permanent Receiver for EminiFX and its affiliates or subsidiaries owned or controlled by EminiFX.”  Plaintiff's claims belong to the corporation, regardless of whether the innocent customers/investors are the intended beneficiaries of this action as emphasized by plaintiff and the dissent.  Consequently, as with a derivative plaintiff or trustee who “stand[s] in the shoes of corporate malefactors” (Kirschner, 15 NY3d at 475), plaintiff's powers are bound by the rights of the entity in receivership (see 28 USC § 959 [“a trustee [or] receiver ․ shall manage and operate the property in his possession ․ in the same manner that the owner or possessor thereof would be bound to do if in possession thereof”];  Eberhard v. Marcu, 530 F3d 122, 132 [2d Cir2008] ).  A receiver plaintiff “has no greater rights or powers than the corporation itself would have” (id., quoting Fleming v. Lind–Waldock & Co., 922 F.2d 20, 25 [1st Cir1990];  see Digital Media Solutions, LLC v. South Univ. of Ohio, LLC, 59 F4th 772, 783 [6th Cir2023] [receiver lacks the authority to pursue claims owned by others];  13 Carmody–Wait 2d § 83:68 [“A receiver for a corporation may commence lawsuits, but stands in the shoes of the corporation and can assert only those claims which the corporation could have asserted”] ).

Here, as the Kirschner Court found, plaintiff's position would require us to favor EminiFX's innocent customers/investors over that of IBKR's innocent third-party shareholders.  Adopting plaintiff's contentions would ignore applicable precedent from the State's highest court.  There is no doubt that the fraud perpetrated against the innocent investors was very serious, but those facts do not change the status of the receiver or place the receiver in the shoes of the innocent investors.  The order clearly appointed the receiver as a representative of EminiFX and its affiliates and subsidiaries.  As a representative fiduciary of the corporation, the role of the receiver is in part to collect and preserve the corporation's assets to the fullest extent possible, but it must do so within the bounds of the rights of the corporation.  The identity of the ultimate beneficiaries is irrelevant because the claims belong to the wrongdoing entity represented by the receiver, not to the customers.  As the corporation may not sue its co-conspirator for negligence or fraud, neither may its successor, plaintiff receiver.  Accordingly, in pari delicto bars plaintiff's claims against IBKR.

Adverse Interest Exception

The narrow adverse interest exception as asserted by the plaintiff is not applicable.  The adverse interest exception provides that “when an agent is engaged in a scheme to defraud his principal, either for his own benefit or that of a third person,” the imputation of the agent's knowledge to his principal fails “because he cannot be presumed to have disclosed that which would expose and defeat his fraudulent purpose” (Center v. Hampton Affiliates, 66 N.Y.2d 782, 784 [1985] ).  “[T]he agent must have totally abandoned his principal's interests and [acted] entirely for his own or another's purposes” (id. at 784–785).

Plaintiff argues that there is a question whether Alexandre as an agent acted completely for his own benefit.  Plaintiff argues that Alexandre's conduct of making risky investments after having syphoned off the company's money into his personal account could fall within the narrow adverse interest exemption.

Even if the allegations in the complaint sufficiently support the adverse interest exception, the court correctly rejected this argument under the “sole actor” rule.  The rule provides that the adverse interest exception does not apply if the alleged wrongdoer was, at the time of the misconduct, either the sole manager or the sole owner of the entity (see 546–552 W. 146th St. LLC v. Arfa, 54 AD3d 543, 545 [1st Dept 2008], lv dismissed in part and denied in part 12 NY3d 840 [2009] ).  Plaintiff does not dispute the court's finding that the “Receiver expressly admitt[ed] in the CFTC Action that, at all relevant times, Alexandre was the sole owner of EminiFX” who held 100% of the shares.  Accordingly, the adverse interest exception does not save plaintiff's claims from dismissal.

In sum, plaintiff, as a representative fiduciary of EminiFX, the wrongdoing entity, is precluded under in pari delicto from litigating this action against IBKR, an outside financial institution.  The fact that plaintiff is an equity receiver as opposed to a bankruptcy trustee or derivative shareholder does not negate the doctrine's application here, nor does the fact that this action was initiated to benefit innocent EminiFX customers.  The receiver stands in the shoes of the corporation while acting in his representative capacity and has no fewer or greater rights than that of the corporation.  Furthermore, we are constrained by the holding in Kirschner, which conclusively applies to this case.

We decline to address the parties' remaining contentions, which are academic in light of our determination.

Accordingly, the order of Supreme Court, New York County (Anar Rathad Patel, J.), entered December 9, 2025, which granted defendant's motion to dismiss the complaint, should be affirmed, without costs.

All concur except Gesmer, J.,

who dissents in a separate Opinion.

Gesmer, J. (dissenting)

Otterbourg, P.C., New York (William M. Moran, Jennifer S. Feeney and Alessandra M. Dagirmanjian of counsel), for appellant.

Dechert LLP, New York (Gary J. Mennitt, Tamer Mallat, Harnelle C. St. Cloud and Julia L. Shea of counsel), for respondent.

I disagree that the complaint in this case is subject to dismissal based on defendant's in pari delicto defense.  Accordingly, I respectfully dissent.

The majority relies heavily on the Court of Appeals decision in Kirschner v. KPMG LLP (15 NY3d 446 [2010] ), which held that the in pari delicto doctrine bars both a derivative corporate plaintiff in a shareholder derivative action and a bankruptcy trustee from prosecuting a claim against an outside actor who had actively colluded with corrupt corporate insiders.  However, the Court of Appeals has never decided that the in pari delicto doctrine can be applied to limit the powers of a federal nonbankruptcy equity receiver.  In my view, this equitable doctrine may not be applied in this case to prevent plaintiff from acting in his court-ordered role as receiver for “all customer funds ․ in the possession of or under the control of Eddy Alexandre.”  Accordingly, I would reverse the motion court's order granting dismissal on the basis of in pari delicto and would remand for the motion court to address defendant's other arguments for dismissal.

Factual and Procedural History

The following facts are based on the complaint, which we accept as true on this motion to dismiss (see Moore Charitable Found. v. PJT Partners, Inc., 40 NY3d 150, 153 [2023] ), unless otherwise stated.  This case arises from a Ponzi scheme created by the former chief executive officer of EminiFX, Eddy Alexandre, for which he ultimately pleaded guilty to commodities fraud and was sentenced to nine years of incarceration.  Before he was caught, Alexandre recruited tens of thousands of individuals to deposit funds into a so-called “investment club.”  He claimed that the investors would be able to conduct cryptocurrency and foreign exchange trading through EminiFX by means of a technology he called a “robo-advisor assisted account,” which did not in fact exist.  As the sentencing court found, the investors were predominantly members of the Haitian community in the United States, including many members of Alexandre's own church, who “believed in him and trusted him [because he] was an admired member of the Haitian community [and] was seen as a man of integrity and faith.”  The sentencing court further noted that many investors contributed much of their life savings and could not afford to lose their investment.  Initially, Alexandre provided his investors with online EminiFX account statements which falsely indicated that their balances had increased by between 5% and 9.99% each week.  In reality, Alexandre used investors' funds for his own benefit or to make risky investments that lost millions of dollars.

Alexandre opened a personal account with defendant Interactive Brokers, LLC (IBKR) in 2019.  Through November, 2021, he typically made deposits into that account in amounts between $10,000 and $20,000, with the largest deposit being $35,000.  Starting in December 2021, Alexandre began making vastly larger deposits into that account.  From December 2021 through January 2022, Alexandre transferred more than $9 million of investor funds out of EminiFX bank accounts into his personal account with IBKR and then lost more than $7 million of those funds through risky investments on IBKR's trading platform.⁴  Alexandre told IBKR that the funds deposited into his personal account in late 2021 and early 2022 belonged to EminiFX investors.

During this period, IBKR declined Alexandre's request to open a corporate account for EminiFX because Alexandre failed to provide it with basic information about the company.  Despite IBKR's knowledge of EminiFX's highly questionable qualifications, IBKR permitted Alexandre to make wildly risky trades on its platform with funds it knew belonged to EminiFX investors.  The complaint alleges that IBKR enabled Alexandre to squander EminiFX investors' funds and then negligently froze Alexandre's positions, resulting in the loss of over $7 million of his investors' funds.

On May 11, 2022, the Commodity Futures Trading Commission (CFTC) filed a civil complaint in the United States District Court, Southern District of New York,

against Alexandre and EminiFX based on Alexandre's Ponzi scheme (the CFTC action).  The complaint sought an order:  (1) determining that defendants had violated federal commodities fraud provisions under the Commodity Exchange Act (7 USC § 1 et seq.);  (2) directing defendants to disgorge all benefits received from those violations;  (3) “requiring Alexandre and EminiFX ․ to make full restitution to every person who has sustained losses proximately caused by the violations”;  and (4) imposing civil penalties against Alexandre and EminiFX (2022 U.S. Dist Ct Pleadings LEXIS 221546 [SD N.Y. May 11, 2022] ).  The CFTC also filed an order to show cause seeking appointment of a temporary receiver.

The CFTC action was assigned to the Hon. Valerie Caproni.  Exercising her authority under the Commodity Exchange Act (7 USC § 13a–1) and her inherently broad equity power in actions brought by federal agencies (see Securities & Exchange Commn. v Fischbach Corp., 133 F3d 170, 175 [2d Cir1997];  Commodities Futures Trading Commn. v Rolando, 589 F Supp 2d 159, 172 [D Conn 2008] ), Judge Caproni appointed plaintiff the same day as temporary equity receiver, subject to the requirements of 28 USC §§ 754, 959 and 1692, and Federal Rule of Civil Procedure 66.  The order named plaintiff as the receiver (1) for EminiFX;  and (2) for “all customer funds and property and other assets traceable to customers in the possession of or under the control of Eddy Alexandre” (Order Granting Plaintiff's Motion for an Ex Parte Statutory Restraining Order, Appointment of a Temporary Receiver, and Other Equitable Relief at 9, Commodity Futures Trading Commision v Alexandre, No. 22–cv–3822 [VEC] [SD NY, May 12, 2022], ECF No. 9).

As discussed further below, unlike a trustee under the Bankruptcy Code, none of the federal statutes cited in the order places the equity receiver exclusively “in the shoes” of the corporation (Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 [2d Cir1991];  see also Commodity Futures Trading Commn. v Weintraub, 471 U.S. 343, 353 [1985] [bankruptcy trustee “plays the role most closely analogous to that of a solvent corporation's management”];  11 USC § 541[a][1] [bankruptcy estate includes legal or equitable interests of the debtor];  11 USC § 542[b] [requiring entity owing debt to bankruptcy debtor to make payment to the bankruptcy trustee] ).

The statutory restraining order is based on a finding of “good cause for the appointment of a Temporary Receiver to take control of all assets owned, controlled, managed, or held by Defendants ․ so that the Temporary Receiver may preserve assets, investigate and determine customer claims, determine unlawful proceeds retained by Defendants and amounts due to customers as a result of Defendants' alleged violations.”  The order further authorizes the receiver to perform “all acts necessary ․ to conserve, hold, manage and preserve the value of the Receivership Estate in order to prevent an irreparable loss, damage, or injury to any customers or clients ․ and otherwise protect the interests of any customers and clients,” including assuming full control of the receivership defendants, removing Alexandre and any other officers of EminiFX from control and management, and commencing litigation, such as the case at bar, necessary to carry out the order's mandate (Statutory Restraining Order at 11;  see also CFTC v. Alexandre, 2025 WL 252435, at *1 [SD N.Y. Jan. 21, 2025] ).

On June 15, 2022, Judge Caproni entered a consent order for preliminary injunction appointing plaintiff as the permanent equity receiver (Consent Order for Preliminary Injunction Against Defendants Eddy Alexandre and EminiFX, Inc. at 9, Commodity Futures Trading Commission v Alexandre, ECF No. 56).  The consent order incorporated the same equitable powers and mandate accorded to plaintiff in the temporary restraining order.  In addition, the consent order defined “Alexandre Assets” as “assets of or in the name of Eddy Alexandre ․ that the Receiver has a reasonable good-faith belief are traceable to EminiFX customers” (id. at 5).  It defined “Receivership Property” as (1) EminiFX and all of its assets;  and (2) the Alexandre Assets (id. at 13).  This proceeding involves only the Alexandre Assets, as defined by the consent order.  The consent order provides that plaintiff “shall be the agent of this Court in acting as Receiver under this Order” (id. at 13).

Plaintiff exercised his powers to remove Alexandre from control and management of EminiFX to ensure that Alexandre not benefit from any funds recovered by plaintiff.  Plaintiff also filed a proposed distribution plan with the District Court which provided that the vast majority of the receivership estate, including all funds recovered in this action, would be distributed to innocent investors.

In December 2024, plaintiff commenced this action “solely for the benefit of the customers of EminiFX,” in which he alleged causes of action against IBKR for negligence, gross negligence, and aiding and abetting breach of fiduciary duty.  The motion court granted defendant's motion to dismiss on the basis of in pari delicto.  Plaintiff now appeals.

Analysis

The in pari delicto doctrine “mandates that the courts will not intercede to resolve a dispute between two wrongdoers” and is based on the “principle that a wrongdoer should not profit from his own misconduct” (Kirschner, 15 NY3d at 464).  It “serves important public policy purposes.  First, denying judicial relief to an admitted wrongdoer deters illegality.  Second, [it] avoids entangling courts in disputes between wrongdoers” (id.).  In my view, neither policy is served by applying in pari delicto to dismiss the complaint in this case because plaintiff brings this action solely for the benefit of innocent investors.

My colleagues in the majority base their affirmance of the motion court on the Court of Appeals' opinion in Kirschner (15 NY3d 446).  Kirschner addressed questions certified to the Court of Appeals in two separate cases involving interpretation of the in pari delicto doctrine.  The certified question most relevant to the instant case came from the Delaware Supreme Court in a derivative action against PricewaterhouseCoopers LLP (PWC), the independent auditor for American International Group (AIG).  The derivative action was commenced on behalf of AIG by two Louisiana retirement systems that were AIG shareholders (Teachers' Retirement Sys. of Louisiana v Pricewaterhouse Coopers LLP, 998 A.2d 280 [Del 2010] ).  The derivative plaintiffs alleged that PWC failed to perform in accordance with professional standards and, as a result, failed to detect or report fraud perpetrated by AIG's senior officers.  The Delaware Supreme Court asked the Court of Appeals to determine whether

“the doctrine of in pari delicto bar[s] a derivative claim under New York law where a corporation sues its outside auditor for professional malpractice or negligence based on the auditor's failure to detect fraud committed by the corporation;  and, the outside auditor did not knowingly participate in the corporation's fraud, but instead, failed to satisfy professional standards in its audits of the corporation's financial statements” (Kirschner, 15 NY3d at 463).

The Court of Appeals answered that question in the affirmative (id. at 477).⁵

In my view, Kirschner does not bar plaintiff's claims in this action for four reasons.  First, neither the Court of Appeals nor this Court has ever ruled on whether in pari delicto bars claims brought by a federal equity receiver solely for the benefit of innocent investors.  Rather, the Court of Appeals has only barred claims brought by shareholder derivative plaintiffs suing on behalf of the corporation whose officers committed fraud and by a bankruptcy trustee.  Under the Bankruptcy Code, the bankruptcy trustee “stands in the shoes of the bankrupt corporation” and is limited to bringing only suits that the bankrupt corporation could have brought (Shearson Lehman Hutton, Inc., 944 F.2d at 118;  see also Walker, Truesdell, Roth & Assoc., Inc., Trustee of Greenwich Sentry, L.P. Litig.  Trust v Globeop Fin. Servs.  LLC, 43 Misc.3d 1230[A], 2013 N.Y. Slip Op 52318[U], *9 [Sup Ct, N.Y. County 2013], affd sub nom.  New Greenwich Litig.  Trustee, LLC v Citco Fund Servs.  [Europe] B.V., 145 AD3d 16, 19, 23–24 [1st Dept 2016] ).⁶

Second, I disagree with the majority's claim that “there is no significant difference between bankruptcy trustees and non-bankruptcy receivers for purposes of in pari delicto.”  The case the majority cites for this proposition, Caplin v Marine Midland Grace Tr. Co. of New York, 406 U.S. 416 (1972), involved a reorganization trustee appointed pursuant to the Bankruptcy Code. Accordingly, it does not address the powers of an equity receiver like plaintiff.  The duties of a reorganization trustee are strictly limited by the Bankruptcy Code, in which “Congress has established an elaborate system of controls with respect to indenture trustees and reorganization proceedings” (id. at 428).⁷

In contrast, in enforcement actions commenced by a federal agency, such as this action brought by the CFTC, federal courts have broad equitable powers to appoint receivers and oversee the distribution of assets to protect innocent investors (see Fischbach Corp., 133 F3d at 175;  Rolando, 589 F Supp 2d at 172).  Unlike a bankruptcy trustee, whose authority is expressly limited by the Bankruptcy Code, “[a]n equity receiver's duties are fashioned and may be modified by the appointing court” (Javitch v Transamerica Occidental Life Ins. Co., 408 F Supp 2d 531, 538 [ND Ohio 2006] ).  Indeed, federal courts have recognized that the in pari delicto defense is not appropriately asserted against federal non-bankruptcy receivers who are authorized to institute litigation on behalf of innocent investors (see Jones v. Wells Fargo Bank, N.A., 666 F3d 955, 967 [5th Cir2012];  Scholes v. Lehmann, 56 F3d 750, 754–55 [7th Cir1995], cert denied 516 U.S. 1028 [1995];  Javitch, 408 F Supp 2d at 538).⁸

The aims of the Bankruptcy Code and the Commodities Exchange Act are different and therefore courts fashion orders which assign different roles and powers to bankruptcy trustees and to equity receivers to achieve their respective legislative aims.  “The principle purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor” (Marrama v Citizens Bank of Massachusetts, 549 U.S. 365, 367 [2007] [internal quotation marks omitted] ).  In contrast, the express purpose of the Commodities Exchange Act and its establishment of the CFTC is “to serve the public interests” in commodities transactions, including “protect[ing] all market participants from fraudulent or other abusive sales practices and misuses of customer assets” (7 USC § 5).  Accordingly, receivers appointed at the request of the CFTC, as plaintiff was here, do not act on behalf of wrongdoer defendants alleged to have violated the Commodities Exchange Act, but in the interest of the CFTC to ensure that the Commission's regulatory and civil remedies are effective (see Enforcement Manual, Commodity Futures Trading Commission Division of Enforcement at 28 [May 20, 2020] [“CFTC typically recommends the appointment of receivers in cases where the defendants have engaged in fraud” to “maximize restitution for injured customers”], available at https://www.cftc.gov/LawRegulation/EnforcementActions/index.htm [last accessed July 29, 2026] ).

This legislative purpose of the Commodities Exchange Act and the role of the receiver in CFTC enforcement actions is reflected in the order appointing plaintiff as equity receiver.  The order specifically authorizes him to commence actions such as this one for the benefit of innocent investors.  While the order appoints him as the receiver for EminiFX, it also appoints him as receiver for “all customer funds ․ in the possession of or under the control of Eddy Alexandre” and expressly authorizes him to commence proceedings as necessary to protect the interests of innocent investors.  In commencing this action to recover investor funds Alexandre had placed into his personal IBKR account, plaintiff is acting in the latter role and clearly for the benefit of the innocent investors.  To impute Alexandre's conduct to the equity receiver appointed in the CFTC enforcement action would seriously undermine both the federal agency's objectives in bringing the case and the federal court's order appointing plaintiff as equity receiver.  Furthermore, it is inappropriate to apply the equitable doctrine of in pari delicto to prevent the equity receiver from carrying out the equitable purpose assigned to him by the enabling order, under which he acts as the agent of the federal court.  Under these circumstances, the in pari delicto defense is not applicable (see Jones, 666 F3d 955, 967).  In contrast, in Kirschner (15 NY3d at 475) plaintiffs stood “in the shoes of the corporate malefactors.”  Therefore, the statement in the majority writing that “there is no significant difference between bankruptcy trustees and non-bankruptcy trustees for purposes of in pari delicto” is inaccurate.⁹

Third, in this case, there is no danger that the defendants in the CFTC action would profit from their wrongdoing, since plaintiff receiver has already removed Alexandre and other senior officers from the control and management of EminiFX.  The Second Circuit has adopted the position that in pari delicto does not apply once the wrongdoer has been removed, since that equitable defense “loses its sting when the person who is in pari delicto is eliminated” (Barkhouse v. Dean, 2025 WL 2773069, *10, 2025 U.S. Dist LEXIS 190154, 27 [SD NY, Sept. 26, 2025, No. 24CV7491 (NRB) ], [quoting Scholes, 56 F3d at 754] ).  To the extent that plaintiff was appointed receiver for EminiFX, he is not barred by in pari delicto from bringing this suit for the benefit of its innocent investors because he has removed Alexandre from control of EminiFX.  An equity receiver has standing to sue third party transferees (here, IBKR) to recover fraudulently managed investor funds where an entity subject to the receivership (here, EminiFX) is a creditor of the fraudulent principal (here, Alexandre) (Eberhard v. Marcu, 530 F3d 122, 132 [2d Cir2008] ).  A lawsuit is not barred by in pari delicto where, as here, the receiver has removed the fraudulent principal from control of the corporate creditor, since, in such a case, the lawsuit is for the benefit of the corporate entity's innocent investors and creditors (id. at 132–133 [citing Scholes, 56 F3d at 755] ).

Fourth, as the first three points illustrate, this case does not implicate the public policy undergirding application of in pari delicto.  Since plaintiff has removed the wrongdoer from control and does not stand in his shoes, dismissing this case will not deter future wrongdoing by Alexandre or other corporate officers.  Since plaintiff represents the interests of innocent investors, there is no danger in this case of embroiling the courts in a battle between two wrongdoers.

Indeed, the equities in this case favor permitting it to go forward.  My colleagues in the majority rely on language in Kirschner musing that “[i]n a sense,” the plaintiffs' positions in that case “may be viewed as creating a double standard,” under which plaintiffs who stand in the shoes of the corporate wrongdoer may shift the cost of its wrongdoing onto “innocent stakeholders of the corporation's outside professionals” (15 NY3d at 475).  However, here, the equity receiver represents the interests of innocent investors, many of whom have lost much of their life savings because they entrusted them to a respected member of their community and church.  These people are not sophisticated institutional shareholders suing on behalf of the corporation as in Teachers' Retirement Sys. of Louisiana v Pricewaterhouse Coopers LLP (998 A.2d 280 [Del 2010] ), nor are their claims brought by a bankruptcy trustee who may only act “in the shoes of” the corporation, as in Kirschner v. KPMG LLP (590 F3d 186, 190 [2d Cir2009] ).  Furthermore, defendant fails to identify any “innocent stakeholder” whose interests might be at risk.  Accordingly, I would find that the equities in this case, as far as they have been presented to us on this motion to dismiss, favor denial of the motion to dismiss this action on the basis of in pari delicto.

The language cited by the majority finding that applying in pari delicto in the Kirschner cases would not have provided “a meaningful additional deterrent to professional misconduct or malpractice” (15 NY3d at 476) is similarly inapplicable in this case.  Each of the defendants in the Kirschner cases had already agreed to settlements totaling tens of millions of dollars, which, as the State Court of Appeals noted, are typical in the types of large-scale, economy-collapsing corporate scandals at issue in those cases and which were alarmingly widespread in 2010 when the Court decided Kirschner (id. at 476, n 2).  However, the record in this case reveals no similar penalties, or even public reckoning, related to any wrongdoing by IBKR. Accordingly, should plaintiff prove that IBKR committed negligence or gross negligence, or aided and abetted a breach of fiduciary duty, any penalties imposed by the court are likely to be the only deterrence against similar wrongdoing in the future.  Therefore, for the reasons discussed above, I would find that defendant failed to meet its burden to demonstrate that the affirmative defense of in pari delicto requires dismissal of the complaint.

Finally, I agree with the majority in rejecting plaintiff's alternative argument that the adverse inference exception to the general presumption that the acts of agents are imputed to their principal applies in this case (see 546–552 W. 146th St. LLC v. Arfa, 54 AD3d 543, 545 [1st Dept 2008], lv dismissed in part and denied in part 12 NY3d 840 [2009] ).  However, I would do so for a different reason than articulated by the motion court and the majority.  As discussed above, plaintiff in this case does not stand exclusively in the legal shoes of EminiFX and is expressly authorized by the order appointing him to commence this proceeding solely for the benefit of innocent investors.  Accordingly, while Alexandre's wrongdoing can be imputed to EminiFX because he was the sole shareholder (id.), that is irrelevant to the question of whether plaintiff may commence this action on behalf of innocent investors.  Moreover, since the adverse inference exception would only have the effect of barring the application of in pari delicto, it is irrelevant since my analysis would prevent the application of in pari delicto completely.

Order, Supreme Court, New York County (Anar Rathad Patel, J.), entered December 9, 2025, affirmed, without costs.

Opinion by Michael, J. All concur except Gesmer, J., who dissents in a separate Opinion by Gesmer, J.

Kennedy, J.P., Friedman, Gesmer, Michael, JJ.

THIS CONSTITUTES THE DECISION AND ORDER

I.

II.

III.

OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED:  October 13, 2026

FOOTNOTES

1.   The cases cited by the dissent (see e.g. Jones v. Wells Fargo Bank, N.A., 666 F3d 955 [5th Cir2012];  Scholes v. Lehmann, 56 F3d 750 [7th Cir1995], cert denied 516 U.S. 1028;  Javitch v Transamerica Occidental Life Ins. Co., 408 F Supp 2d 531 [ND Ohio 2006] ) involve claims arising under other states' laws where in pari delicto is not enforced under certain circumstances not applicable here.  The dissent cites no New York authority under which the receiver would be relieved of the in pari delicto defense under the circumstances of this case, and the holding of New York's highest court in Kirschner, as discussed below, undermines the dissent's conclusions.

2.   The dissent asserts that this case is inapposite because a SIPA trustee is similar to a bankruptcy trustee whereas here, the claims have been brought by an equity receiver.  However, as noted herein, there is no significant difference between bankruptcy trustees and nonbankruptcy receivers for purposes of in pari delicto (see Caplin, 406 U.S. at 429;  Knauer, 348 F3d at 236).

3.   (see Shearson Lehman Hutton, Inc. v Wagoner, 944 F.2d 114 [2d Cir1991] )

4.   1This lawsuit seeks recovery of only a portion of the more than $248 million in funds which Alexandre defrauded from his investors.

5.   The other case discussed in Kirschner (Kirschner v. KPMG LLP, 590 F3d 186 [2d Cir2009] ) came to the Court of Appeals on a certified question from the Second Circuit regarding the adverse inference exception to the presumption that the acts of agents are imputed to their principals.  That case was commenced by the litigation trustee appointed in a Chapter 11 Bankruptcy proceeding against the bankrupt corporation's senior leadership who had participated in a fraudulent scheme to hide uncollectible debt from the public and regulators, and against financial, law and accounting firms that had allegedly aided and abetted the company insiders in carrying out the fraud.  In that case, the Second Circuit asked the Court to determine, among other things, “whether the adverse interest exception is satisfied by showing that the insiders intended to benefit themselves by their misconduct”;  and “whether the exception is available only where the insiders' misconduct has harmed the corporation” (Kirschner, 590 F3d at 194–195).  I do not address these certified questions because, as discussed further below, I do not find them relevant to this case, in which plaintiff, unlike a bankruptcy trustee, does not stand exclusively in the shoes of EminiFX.

6.   In re Bernard L. Madoff Inv. Sec. LLC (721 F3d 54, 58 [2d Cir2013], cert dismissed in part Picard v JPMorgan Chase & Co., 573 U.S. 901 [2014], cert denied Picard v. HSBC Bank PLC, 573 U.S. 945 [2014] ), cited by the majority in support of its argument that the bad acts of the corporation are imputed to its successors, is inapposite.  That case held that a trustee appointed pursuant to the Securities Investor Protection Act (SIPA) was barred by “the doctrine of in pari delicto ․ from asserting claims against the [d]efendants on behalf of the estate for wrongdoing in which Madoff ․ participated.”  As the Second Circuit noted, the SIPA trustee “stands in Madoff's shoes” because, “[a]lthough SIPA liquidation is not a traditional bankruptcy, a SIPA trustee is vested with the same powers and title with respect to the debtor and the property of the debtor ․ as a trustee in a case under Title 11” (721 F3d at 58 [internal quotation marks and emphasis omitted] ).  Similarly, Bullmore v. Ernst & Young Cayman Is. (20 Misc.3d 667, 669–671 [Sup Ct, N.Y. County 2008] ) was commenced by joint liquidators in a corporate winding up under Cayman Island law following the corporation's collapse as a result of corporate fraud.  To the extent that it is applicable to this case at all, Bullmore is not binding on this Court.

7.   In Caplin, the U.S. Supreme Court noted that “nowhere in the statutory scheme is there any suggestion that the trustee in reorganization is to assume the responsibility of suing third parties on behalf of debenture holders” (408 U.S. at 428).  It further noted that the Bankruptcy Code permits the reorganization trustee to report to the reorganization court “potential causes of action ‘available to the estate’ ” and that his “task is simply to ‘collect and reduce to money the property of the estates for which (he is trustee)’ ” (id. at 428–429 [internal quotation marks and citations omitted] ).  Since the reorganization trustee failed to show that the corporation could have brought the same claim and because, under the trustee's own theory, the corporation was as much at fault as the defendant, the Court concluded that the trustee lacked standing (id. at 429–430, 434).

8.   The majority attempts to distinguish Jones, Scholes, and Javitch because it claims that portions of those decisions were decided “under other states' laws where in pari delicto is not enforced under certain circumstances not applicable here.”  That is incorrect because, in each of those cases, the court held – as we argue that this Court should hold – that the plaintiff receiver was not barred by in pari delicto from prosecuting a claim where a contrary holding “would undermine one of the primary purposes of the receivership” (Jones, 666 F3d at 966;  see also Scholes, 56 F3d at 755;  Javitch, 408 F Supp 2d at 538).

9.   Furthermore, the cases cited by the majority in support of their argument that courts have applied in pari delicto to receivers who sue third parties are distinguishable.  Williamson v. PriceWaterhouseCoopers, LLP (2007 WL 5527944 [Sup Ct N.Y. County Nov. 7, 2007, No. 602106/2004] ) involved a receiver appointed pursuant to New York's Revised Limited Partnership Act. That case does not support the majority's position, since the court found that “in pari delicto does not apply to an innocent, non-bankruptcy trustee where any recovery is for the sole benefit of those investors who lost money” [capitalization omitted].  Knauer v Jonathan Roberts Fin. Group, Inc. (348 F3d 230 [7th Cir2003] ) and Myatt v. RHBT Fin. Corp. (370 SC 391, 397 [Ct App 2006] ) both involved receivers appointed in actions brought by the Securities and Exchange Commission.  In Knauer, the Seventh Circuit found that in pari delicto applied where the receiver sought tort damages “from entities that derived no benefit from the embezzlements” (id. at 236).  Similarly, in Myatt the court found that in pari delicto applied where there was no evidence that the defendant bank knowingly participated with the corporation's president in her breach of fiduciary duty to investors and the receiver was not seeking funds diverted from innocent investors (370 SC at 393).  In contrast, here, plaintiff seeks to recover innocent customers' funds diverted by Alexandre and the complaint alleges that IBKR “assisted Alexandre in his fraud” and “aided and abetted Alexandre's breach of fiduciary duties” by enabling him to continue to make deposits into and to make trades from his IBKR account despite IBKR's knowledge that Alexandre was using EminiFX customer funds.  Cobalt Multifamily Inv. I, LLC v Shapiro (857 F Supp 2d 419, 428 [SDNY 2012] ) also involved an SEC action in which a receiver was appointed for the bankrupt defendant corporate entities.  It focused on application of the adverse interest exception to in pari delicto.  As discussed further below, I agree with the majority that that exception does not apply here.  Moreover, as to the only defendants to which New York law applied, the District Court granted the motion to dismiss under Wagoner (944 F.2d 114), which addresses standing under the Bankruptcy Code and therefore does not apply here.