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Recent Cases: Two investors recover $400,000 from discount brokerage firm Charles Schwab. |
In 1999, Brad Arberg, an investment advisor at Hemisphere Trading Company, began a scheme to manipulate the market in several small, thinly-traded companies using the investment accounts of his clients (which were maintained at Schwab). Two of Arberg's clients brought claims against Schwab, claiming that since all of Arberg's clients' accounts were maintained at Schwab, the discount brokerage firm should have recognized the suspicious trading patterns across all the accounts. At the hearing, there was evidence that Arberg engaged in front-running (that is, selling stock from his own account right before he placed sell orders in his clients' accounts which he knew would drive the price down and/or buying stock for his own account right before he placed buy orders in his clients' accounts which he knew would drive the price up). There was also evidence of cross-trading (that is, selling stock directly from one client's account into another client's account). Schwab argued that it was a discount brokerage firm and owed no duty to its customers to monitor the trading in their accounts. In 2004, an NASD arbitration panel rejected Schwab's argument and awarded the two investors $400,000 in actual damages. The case was handled by Allison Ficken and another attorney. |
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