best stock broker attorneyIt is OK to steal as long as you do not steal too much to get a greedy lawyer involved.

In the good old days, if you stole $100 from 2 million people, or $200 million, although no competent greedy lawyer would be willing to undertake your representation to recover your $100, the class action bar would line up to file a claim or class action lawsuit on your behalf and on behalf of all others similarly situated, to seek to recover the $200 million on behalf of the class of persons whom were also ripped off. Indeed, for smaller claims, the class action lawsuit is, and has been the only effective means of civil redress for consumers.

Of course, corporate America has gotten wise to this, and nowadays, when you rent a car, open a credit card account, purchase a cell phone, subscribe to cable television, purchase home improvements from Lowes or Home Depot, or even open a brokerage account (which has been the case since 1987), you are required to submit your dispute, not in court, before a jury of your peers, where you can obtain reasonable discovery, or what may appear to be justice, but instead before an arbitration panel, which in some cases can be quite costly, and which has had the desired effect of discouraging such actions.

Arbitration Fairness Act

On July 12, 2008, Congress introduced Senate Bill 1782, entitled the “Arbitration Fairness Act,” based upon a Congressional finding that:

Mandatory arbitration undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators’ decisions. With the knowledge that their rulings will not be seriously examined by a court applying current law, arbitrators enjoy near complete freedom to ignore the law and even their own rules.

Senate Bill 1872 at Section 2 (July 12, 2008, 110th Congress, First Session).

Arbitration Fairness Act Disappears

Later in 2008, Congress had other things to worry about and the Arbitration Fairness Act was never heard from again.

In April 2011, the United States Supreme Court in AT&T Mobility LLC v. Concepion, 563 U.S. ___,131 S. Ct. 1740,2011 U.S. LEXIS 3367 (2011), that arbitration was so important that the Federal Arbitration Act preempted all other laws and required consumers who were ripped off by AT&T to the tune of a few dollars each to submit their individual claims to arbitration and could not file a class action lawsuit.

Of course it was only a matter of time until the securities industry decided to get in on the action.

Class Action Filed Against Charles Schwab & Co

In March 2008, a class action complaint was filed against Charles Schwab & Co., Inc. for fraud and the violation of the federal securities laws in connection with the sale if its YieldPlus shares. In re Schwab Corp. Securities Litigation, No. 080cv-01510 (WHA)(N.D. Ca. Mar 18, 2008). On February 4, 2009, the Honorable William H. Alsup, of the Northern District of California, denied Schwab’s Motion to Dismiss, and on August 21, 2009, granted Class Certification for all individuals and entities who acquired shares of the YieldPlus fund from May 31, 2006 through March 17, 2008.

On January 11, 2010, upon the entry of a finding that Schwab willfully violated anti-fraud provisions of the Securities Act of 1933, and the anti-fraud provisions of the Investment Advisers Act of 1940, in addition to certain other undertakings, Schwab agreed to pay a fines and penalties of $118,944,996, including $52,327,149 in disgorgement of fees, and pre-judgment interest of $9,290,698. Also on January 11, 2010, in response to similar charges brought against Schwab by the Financial Industry Regulatory Authority (FINRA), Schwab agreed to settle these charges by by of a Letter of Acceptance, Waiver & Consent (AWC) agreeing to pay a $18 million fine, representing the $17.5 million in fees that Schwab collected for sales of the fund, plus a fine of $500,000.

Schwab also decided to settle the Class Action complaint by agreeing to pay investors approximately $200 million.

Not long thereafter, in October 2011, following the Supreme Court’s decision in AT&T Mobility LLC v. Concepion, Schwab sough to amend provisions in Schwab’s customer account agreements relating to the arbitration of customer claims, with a pre-dispute arbitration agreement with its customers under the heading “Waiver of Class Action or Representative Action,” which would, in effect, require any customer claim against Schwab to be arbitrated and to be arbitrated solely on an individual, case-by-case basis.

The new agreement sent to 6.8 million of Schwab’s customers specifically provided that:
“You and Schwab hereby waive any right to bring a class action, or any type of representative action against each other or any Related Third Parties in court. You and Schwab waive any right to participate as a class member, or in any other capacity, in any class action or representative action brought by any other person, entity or agency against Schwab or you.”

FINRA Files Disciplinary Action Against Schwab

On February 1, 2012, the Financial Regulatory Authority filed a Disciplinary Action against Schwab alleging that the Class Action Waiver contained two provisions that violate FINRA rules. First, the Class Action Waiver improperly included language requiring customers to waive their right to bring or participate in class actions against Schwab. Second, the Class Action Waiver improperly included language requiring customers to agree that arbitrators have no authority to consolidate more than one party’s claims.

According to the FINRA Complaint, NASD Rule 3110 (f)(4 )(C) and FINRA Rule 2268( d)(3) each prohibit member firms from including “any condition” in predispute arbitration agreements that “limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement.”

Indeed, although not mentioned by FINRA in its complaint, Section 29(a) of the Exchange Act flatly provides that:
Any condition, stipulation, or provision binding of any person to waive compliance with this title or any rule or regulation thereunder, or any rule of an exchange required thereby shall be void.

15 U.S.C. 78ac (a); See, e.g., Lellock v. PaineWebber, Jackson & Curtis, Inc., 1982 Fed. Sec. L. Rep. 98,876 (W.D. Pa. 1982)(contract between customer and broker attempting to limit customer’s remedy for margin violations void); Myer v. Shields & Co., 267 N.Y.S 2d 872 (App. Div. 1966)(contract limiting liability under exchange act void); Schine v. Schine, 254 F. Supp. 986 (S.D.N.Y. 1966)(pre-event release from anti fraud provisions of exchange act void); Cohen v. Tenney Corp., 318 F. Supp. 280 (S.D.N.Y. 1970)(pre-dispute release void as a matter of public policy); Goodman v. Epstein, 582 F.2d 388 (7th Cir. 1978)(pre-dispute releases invalid for securities related claims); Rogen v. Ilikon Corp., 361 F.2d 260 (1st Cir. 1966)(contractual provision of non-reliance on representations may not constitute basis for finding of non-reliance as a matter of law); Special Transportation Services v. Balto, 325 F. Supp. 1185 (D. Minn. 1971)(agreements to limit remedies under the federal securities laws void); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore, 1979 Transfer Binder, Fed. Sec. L. Rep. 96,723 (waiver of remedy void under Section 29(a)); ECL Industries v. Ticor & Southern Pacific Co., 1986 Transfer Binder, Fed. Sec. L. Rep. 92,887 (S.D.N.Y. 1986)(same).

In any event, on February 21, 2013, the FINRA Hearing Panel found that AT&T Mobility LLC v. Concepion and other “Supreme Court precedents to mean that countervailing policy concerns that might counsel against arbitration of a particular kind of dispute – whether state or federal, statutory or regulatory – cannot override the FAA’s mandate, unless there is a clear expression of congressional intent to carve out an exception to the FAA. Without an indication that Congress itself wished to create an exception to the FAA, other policy makers must give way to the FAA. In the case at hand, the Hearing Panel find no such clear expression of congressional intent to preserve judicial class actions as an option for customer claims against a securities broker-dealer in direct contradiction of an agreement to arbitrate those claims.”

Schwab Fined $500,000

Accordingly, notwithstanding that Schwab was fined $500,000 for the provision in its customer agreements barring the consolidation of customer claims, the FINRA Hearing Panel found that it is perfectly acceptable for Schwab to force its customer to agree that cannot be sued in class action or in by a customer acting in a representative capacity.

Barring an appeal to the National Adjudicatory Council, the entire securities industry is expected to follow suit.

Guiliano Law Group

The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. If you own the common stock of TradeStation and purchased your shares before April 21, 2011, and wish to learn more about these claims, contact us at (877) SEC-ATTY

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