FINRA Panel Holds Wall Street Powerhouse Can Prohibit Investors From Participating In Class Action Suits

The Financial Industry Regulatory Authority (“FINRA”), Wall Street’s self-regulatory organization, recently announced that it will appeal a ruling that allowed Charles Schwab & Co., Inc. (“Charles Schwab”) to require customers to waive their right to participate in class-action suits.

In February 2013, a FINRA hearing panel upheld Charles Schwab’s use of arbitration agreements that require customers to bring all disputes into FINA-run arbitration forums. In 2012, FINRA brought charges against the company, alleging that its arbitration agreements violated FINRA rules permitting customers to pursue class action claims in lieu of arbitration. FINRA claimed that by requiring customers to bring all disputes into arbitration forums, Charles Schwab forced customers to waive their right to participate in class-action suits. The panel held that, although Charles Schwab’s actions violated FINRA rules, the FINRA rules themselves violated the National Arbitration Act. The ruling essentially prohibits investors from pursuing class action lawsuits if they have signed arbitration agreements. FINRA has forty five days to appeal to its National Adjudicatory Council, its internal appellate board.

Greg Gable, a spokesman for Charles Schwab, announced that that the company will likely seek a dismissal of pending class actions based on the ruling. He did not comment on whether the company will apply the decision retroactively to previously settled cases.

Gilbert R. Serota, an attorney in the San Francisco office of the international law firm Arnold & Porter, LLP, represented Charles Schwab in the hearing. Gil has extensive trial and appellate experience in all aspects of securities litigation, and routinely represents issuers, broker-dealers, underwriters and their employees in all securities class actions, customer litigation, arbitration, internal investigations, SEC and other regulatory proceedings, and mediation. He has been recognized by SuperLawyers magazine as a "SuperLawyer" every year since 2004. He is also the brother of WSH Founding Member Joseph H. Serota.  You can read more about Gil here.

Chaired by Partner Matthew H. Mandel, WSH’s Litigation Division employs more than twenty litigators and trial attorneys who represent private clients before juries, judges administrative panels, arbitrators and appellate panels. We have prosecuted and defended a wide variety of general commercial and business dispute issues in both individual and class action settings, including those establishing law in the areas of breach of contract, breach of fiduciary duty, business torts, class actions, fraud and RICO, and securities. The Division works closely with our Appellate Practice Group to put our clients in the best leverage position at every phase of a lawsuit.

You can read a copy of the FINRA panel decision here.

Categories: LitigationAlternative Dispute Resolution
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Author(s): Brooke P. Dolara