A Northern California District Court judge dismissed a class-action lawsuit alleging that Charles Schwab’s Intelligent Portfolios violated its fiduciary duty by over-investing clients in cash.
The complaint, originally filed in September by plaintiffs Lauren Marie Barbiero, Kimberly Jo Lopez and William Kenneth Lopez, said “unwarranted and unfair cash sweeps” by the automated investing program cost investors as much as $500 million in market gains. The plaintiffs also alleged that Schwab misrepresented the robo-adviser as a free service while collecting management fees from clients investing in proprietary funds and earning interest on cash swept into Schwab’s bank.
In November, Schwab moved to have the case thrown out.
District Judge Phyllis Hamilton sided with Schwab. Because the class action’s claims are based on state law and allege that the defendants made misrepresentations in connection with the sale or purchase of a covered security, the Securities Litigation Uniform Standards Act prevents the federal court from hearing them, the judge decided.
The statute was designed to prevent artful pleading or forum shopping by those injured in a securities transaction and looking to evade limits on securities litigations designed to block frivolous or abusive suits, Hamilton noted. The court had to determine if the claims could have been pursued under the Securities and Exchange Commission’s rules.
“Reading the complaint in a light most favorable to plaintiffs, the court finds that SLUSA bars plaintiffs’ complaint in its entirety,” Hamilton wrote in her decision.
Calling the lawsuit a “meritless complaint,” Peter Greenley, Charles Schwab's director of corporate external relations, said the company is pleased with the court’s dismissal. Intelligent Portfolios is “a key component of our advisory lineup and an important way to help clients invest for the future in a diversified way," Greenley said in a statement.
The plaintiffs were represented by attorneys from Scott + Scott Attorneys at Law and Peiffer Wolf Carr Kane & Conway. Neither firm immediately responded to requests for comment.
Schwab’s robo-adviser is still facing regulatory scrutiny. The brokerage announced in July that the SEC was probing Intelligent Portfolios regarding disclosure issues. While it didn't detail the SEC’s investigation, the company revealed that it had set aside $200 million to settle potential charges.
CEO Allen Darby sees a coming shift in M&A dynamics as AI eliminates clerical roles at RIAs, leaving buyers and sellers to negotiate who benefits from the added margin.
Michael Bell explains how the PE push in retirement plans will benefit investors, why warnings around risks may be overplayed, and what it will take to get plan fiduciaries comfortable with private investments.
Research highlights the dominant role of workplace retirement plans and breaks down the major factors dictating workers' IRA rollover decisions.
The wealth tech firm is rolling out its "Do Anything" assistant as leaders and strategists tout the next evolution of artificial intelligence.
Appeals court overturns SEC’s CAT funding plan, broker-dealers face new uncertainty.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
