Investor class denied in claims against Charles Schwab

A federal judge refused Wednesday to certify a class of investors who accuse Charles Schwab in a lawsuit of violating its duty to customers by routing most trades to UBS Securities even though cheaper and faster options may have been available at other venues.

Schwab has an agreement with UBS to route the majority of its order to the securities firm in return for $100 million a year, the complaint stated, adding that the contract was reached after UBS acquired the capital markets divisions of Schwab Corp.

Customers of the broker-dealer in 2016 sued Schwab, accusing the financial services company of deceiving them by stating that it adheres to the duty of best execution. The complaint targeted Schwab's agreement with UBS to route 95% of its non-directed trades, which are trades for which clients haven't selected a specific trading venue, to UBS for execution when it could have sent them to venues with better pricing and speed.

Attorneys representing investors moved to certify all Schwab clients who placed trades between July 2011 and December 2014 that were routed to UBS. They claimed that the question of whether customers relied on Schwab's alleged misrepresentations and omissions when conducting their trades can be answered on a classwide basis.

U.S. District Judge Richard G. Seeborg denied class certification because "there is not a common answer" that would "resolve the issue that is central to the validity of each of the claims in one stroke."

"Instead, each plaintiff would need to provide individualized evidence of their reliance," he wrote.

Seeborg concluded that investors could have had diverse motivations in choosing Schwab as their broker-dealer. He pointed to the quality of its platform, lower commissions compared to other brokers and recommendation from family.

The judge also concluded that there's not enough evidence that customers relied on misrepresentations and omissions from Schwab regarding its agreement with UBS. He called some of the allegedly misleading statements "not so extensive."

"Indeed, for a consumer trading a small number of stocks, knowledge of the relatively small individual losses attributed to a failure to provide best execution may not have changed the consumer's choice to use Schwab, considering the variety of other factors at play when choosing a broker-dealer," he wrote.

The lawsuit was filed in federal court in San Francisco. There are others in federal court in Manhattan.

Representatives of Charles Schwab did not respond to requests for comment. It is represented in the case by Arnold & Porter Kaye Scholer LLP.

The investors are represented by Glancy Prongay & Murray LLP and Bragar Eagel & Squire, P.C. Crago v. Charles Schwab & Co., Inc., CV16-03938 (N.D. Cal., filed July 13, 2016).