A federal court judge has thrown out a lawsuit by Charles Schwab Corp. that sought to stop its regulator from bringing a disciplinary case against the company for trying to take away customers’ rights to sue it in class-action lawsuits. Magistrate Judge Elizabeth Laporte of the U.S. District Court for the Northern District of California granted a request by the Financial Industry Regulatory Authority to dismiss the lawsuit that Schwab had filed against the regulator in February. The San Francisco-based brokerage sued FINRA, Wall Street’s industry-funded watchdog, a day after the regulator announced an enforcement case against the company.
FINRA alleged that Schwab added a new provision to more than 6.8 million customer account agreements in October that would preclude them from starting or joining class-action lawsuits against the brokerage. It was said that the case raised significant investor protection issues. Class actions are a common way for small investors to band together in a court case to recover their losses. A win by Schwab would have set the stage for a showdown that would allow other companies to change their arbitration agreements and weaken FINRA’s hold over its own enforcement process. Judge Laporte, in his opinion, agreed with FINRA that Schwab, which FINRA regulates, is required to follow its procedures for disciplinary cases. That process ultimately includes a review by a federal court judge.
Source: Insurance Journal
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