Crago v. Charles Schwab & Co. et al.

Securities Law Violation

Northern District

U.S. District Judge Richard Seeborg

Defense Attorneys: Sidley Austin Llp, Alex J. Kaplan, Eamon P. Joyce, Jon W. Muenz, Sarah Goodfield; Arnold & Porter Kaye Scholer Llp, Gilbert R. Sirota

Plaintiffs Attorneys: Glancy Prongay & Murray Llp, Jonathan M. Rotter, Garth A. Spencer; Bragar Eagel & Squire, P.C., Lawrence P. Eagel, David J. Stone, Melissa A. Fortunato; Levi & Korsinsky Llp, Adam C. Mccall

Alex J. Kaplan

In securities litigation, stock drop suits are common. But a different theory of recovery rose in the wake of Michael Lewis' 2014 best seller "Flash Boys: A Wall Street Revolt." The theory underlay the complaint in a billion-dollar class action filed against broker Charles Schwab & Co. contending that Schwab's practice of routing most customer trades to a single venue for completion--UBS Securities--in exchange for $100 million per year violated Schwab's duty of best execution. Crago v. Charles Schwab & Co. Inc. et al., 3:16-cv-03938 (N.D. Ca., filed July 13, 2016).

After Schwab lost a motion to dismiss the case, it retained Sidley Austin LLP as co-counsel. Sidley securities litigation partner Alex J. Kaplan and appellate partner Eamon P. Joyce worked together on strategy for opposing class certification.

The plaintiffs' challenge was to persuade the court that although the details of individual trades were admittedly at the heart of the case, it remained appropriate for class treatment because the plaintiffs had developed an algorithm that could harmonize the class losses. "The plaintiffs tried to say they could solve for the unique order problem by using a black box," Kaplan said. "We argued that this was not the case at all."

Chief Judge Richard Seeborg of San Francisco agreed in October 2021 that the plaintiffs had not found a way to certify the class. His ruling identified the plaintiffs' failure to establish that the class relied on misstatements or omissions by Schwab and therefore he did not need to reach the technology arguments. The plaintiffs' motion for leave to appeal was rejected on Jan. 20 by the 9th U.S. Circuit Court of Appeals. Lead class attorney Lionel Z. Glancy of Glancy Prongay & Murray LLP did not respond to a message seeking comment.

Joyce said a highlight of the litigation was his teamwork with Kaplan. "We're a fun one-two punch. I'm an appellate lawyer by trade, so I had to ask a lot about these complex questions of securities law. That worked to our advantage as we distilled the issues for the judge and his clerks."

- John Roemer

Eamon P. Joyce

Jon W. Muenz