By SUSAN ANTILLA
Class-action lawsuits are the bane of most financial firms, and many recoil at the prospect of paying out millions to groups of clients if investments go sour. Now, the discount brokerage firm Charles Schwab & Company finds itself at odds with regulators as it seeks to eliminate the option of such suits for its clients.
For Wall Street, the skirmish has inadvertently brought fresh and unwelcome attention to the investor arbitration process and its flaws, and could severely curtail efforts by investors hurt by widespread problems, including claims of being marketed unsuitable investments by brokers who gave a deceptive sales pitch.
Investors generally have not been able to use the public court system for their disputes with their stockbrokers since 1987, when the Supreme Court ruled in Shearson v. McMahon that a brokerage firm could force customers to agree to arbitration. Since then, virtually every firm has added a so-called mandatory arbitration agreement to its new-account documents.
One exception was for issues that were pervasive enough to warrant class-action status, that way allowing groups of investors to sue a firm or firms.
But in 2011, Schwab added a clause to its customer agreement that required clients to agree not to pursue or participate in class-action suits….