The Financial Industry Regulatory Authority (FINRA) has filed a complaint against Charles Schwab & Company, charging the firm with violating FINRA rules by requiring its customers to waive their rights to bring class actions against the firm. The complaint alleges that in October 2011, Schwab amended its customer account agreement to include a provision requiring customers to waive their rights to bring or participate in class actions against the firm. It’s alleged that Schwab sent the amended agreements to nearly 7 million customers. The agreement also included a provision requiring customers to agree that arbitrators in arbitration proceedings would not have the authority to consolidate more than one party’s claims. Each provision violates FINRA rules concerning language or conditions that firms may place in customer agreements, according to FINRA.
An expedited hearing was sought because Schwab’s conduct is ongoing. It appears the firm has continued to use account agreements containing these provisions in opening more than 50,000 new customer accounts since October 2011. The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings in the complaint have not been made, and does not represent a decision. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.
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