FINRA Complaint Spurred by Schwab Client-Waiver

On 17.02.12, In Legal Industry, by Blake Houser

2/17/2012

 

A complaint was filed on Wednesday by Wall Street’s own watchdog against Charles Schwab Corp charging the online brokerage firm of requiring clients to waive their rights to seek class actions against the firm, which is a violation of industry rules.

According to the complaint filed by the Financial Industry Regulatory Authority, or FINRA, the San Francisco-based Schwab added in October a new provision to over 6.8 million client account agreements that would prevent them from initiating or joining in class-action lawsuits against the brokerage firm.

The lawsuit further alleged that Schwab also obligated its clients to agree that industry arbitrators would not have authority to merge claims from multiple parties. These types of consolidated claims are common, but usually include fewer claimants compared to those in class action suits.

In addition to being a regulator on Wall Street, FINRA operates the arbitration forum where brokerage firms and its customers generally must resolve legal disputes. The arbitration rules of FINRA do not permit arbitrators to hear class action cases.

The rules also constrain brokerage firms from limiting the rights of investors to file cases in court in situations arbitration rules allow, like in class actions.

According to lawyers, the agreement would, in effect, leave investors in a quandary, where most of them would not have access to a legal course for recovering their losses.

Securities arbitration lawyer Steven Caruso of the New York-based Maddox Hargett & Caruso said that investors with bigger claims, for instance $1 million, could have an economic incentive to seek claims in an individual arbitration case. However, he said that investors with small damages, who would usually band together in class action cases, would have no remedy.

Blake Houser

Client Relations Manager at The Wells & Drew Companies
About the author:
Blake Houser is Client Relations Manager at Wells & Drew. In addition, he is the third generation in this family-owned speciality printing business.

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