Court Dismisses Charles Schwab Challenge Against Finra
First Published Saturday, 12th May 2012 01:09 am - © 2012 Dow Jones
(Updates with Finra response, additional background beginning in second paragraph)
Dow Jones NEWSWIRES
A federal court threw out Charles Schwab Corp.'s (SCHW) challenge against the financial industry's self-regulator, ruling the discount brokerage failed to exhaust its extrajudicial options.
The ruling comes after the Financial Industry Regulatory Authority accused Schwab of violating the organization's rules by requiring customers to waive their rights to bring class-action lawsuits against the firm. Finra sought to discipline the company through an out-of-court process.
Schwab earlier this year moved to head off the action by seeking a declaratory judgment against Finra. Schwab asked the court to determine that the class-action waiver provisions were enforceable based on recent U.S. Supreme Court decisions and the Federal Arbitration Act.
A Finra spokeswoman declined to immediately comment on the ruling. A Schwab representative wasn't immediately available for comment.
Finra flagged Schwab after it amended its customer account agreement to include a provision requiring the waiver in October 2011 and sent the paperwork to 7 million customers.
The agreement also includes a provision requiring customers to agree that arbitrators wouldn't have the authority to consolidate more than one party's claims, Finra said.
Federal magistrate Elizabeth Laporte said Schwab failed to show it exhausted the disciplinary options available under the financial industry's administrative process. The law requires parties to make their case in other venues before taking them to court, according to the order from the U.S. District Court for the Northern District of California.
Schwab Shares were up 4 cents at $13.15 after hours. The stock had fallen 28% over the past year through Friday's close.
-By Drew FitzGerald, Dow Jones Newswires; 212-416-2909; Andrew.FitzGerald@dowjones.com