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UPDATE: Schwab Wins Fight Over Class Action Waivers, For Now

By George Miller of Shustak Reynolds & Partners, P.C. posted on Monday, February 25, 2013.

Just over one year ago, FINRA initiated disciplinary proceedings against Charles Schwab & Co. claiming, amongst other things, that the firm violated FINRA rules by requiring customers to sign agreements containing broadly-worded class action waivers. In an unusually long, 48-page written decision issued last week, a Financial Industry Regulatory Authority (FINRA) enforcement panel agreed that Schwab’s conduct violated FINRA rules and fined the firm $500,000.00. But in a strage twist, the panel also concluded FINRA was without the authority to enforce its rules proscribing class action waivers in light of the Federal Arbitration Act.

At least for now, Schwab’s class action waivers stand as valid. Either party may appeal the panel’s ruling to FINRA’s National Adjudicatory Council within 45 days. According to industry sources, an appeal is likely.

The ruling has been criticized as a significant blow to investors. FINRA rules do not currently permit customers to bring class action claims in arbitration. As a result, the ruling effectively bars investors from participating in a class action in any forum. Though sometimes criticized, class actions can be a useful tool affording legal protection to investors who otherwise would be unable to bring a claim on an individual basis.

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