The Financial Industry Regulatory Authority has filed a complaint against Charles Schwab Corp. The SRO says the online brokerage is in violation of FINRA rules because it makes clients waive their rights to pursue class actions against it.
Per a new provision added to over 6.8 million customer account agreements, Charles Schwab clients are now not allowed to begin or join class-action complaints against the financial firm. Customers must also agree that arbitrators won’t be given authority to consolidate claims from different parties, as this would set up a class-action situation.
Over 50,000 clients have opened accounts with the financial firm since it implemented this new limitation. Now, FINRA wants an expedited hearing. The SRO is concerned that the class action waiver will cause millions of Schwab clients to mistakenly think they cannot bring or take part in an already existing class action complaint against the brokerage firm. Also, FINRA has specific rules about the conditions that financial firms can place on clients, and the SRO says this provision is a definite violation.
In an attempt to counter FINRA’s claims, on February 1, Schwab submitted a declaratory judgment action in district court. It wants a determination that agreements, such as the class action waiver, are enforceable. It has noted the US Supreme Court’s recent opinions interpreting the Federal Arbitration Act. For example, Schwab says that in in AT&T Mobility LLC v. Conception, the court said that the FAA preempts statutes or cases that mandate access to procedures regarding class action. The brokerage firm also pointed to the court’s ruling in Compucredit Corp. v. Greenwood, in which it ruled that solely a congressional mandate that was clear could preclude enforcing an arbitration agreement under the FAA. The brokerage firm believes that this matter should be resolved in federal court. It has vowed to combat any disciplinary action that FINRA attempts to impose against it.
At Shepherd, Smith, Edwards and Kantas, LTD, LLP, our stockbroker fraud lawyers represent institutional and individual clients with individual securities claims and lawsuits against investment advisers and financial firms. While filing a class action may seem like the less stressful, easier option, you have a greater chance of recouping more, if not all, of your losses if you file an individual securities fraud case.
However, this does not mean that you should have your right to file or join a class action complaint taken away from you. Unfortunately, brokerage firms can commit certain acts of misconduct that may cause investors to unnecessarily suffer financial losses. You should know that you could be able to get back some, if not all, of your money.
Our stockbroker fraud law firm has helped thousands of investors successfully pursue securities fraud lawsuits and claims against financial firms. Your first case evaluation with Shepherd Smith Edwards and Kantas, LTD, LLP is free.
Schwab new client-waiver spurs FINRA complaint, Reuters, February 1, 2012
FINRA Files Complaint Against Schwab for Asking Customers to Sign Waiver, AdvisorOne, February 1, 2012
Read the FINRA Complaint
More Blog Posts:
Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities, Stockbroker Fraud Blog, September 7, 2010
Schwab to Distribute $3.5 Billion to Its Shareholders by Buying Back Over 100 Million Shares, Stockbroker Fraud Blog, July 11, 2007
Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 26, 2012