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United States District Court for the Northern District of California
October 27, 2021, Decided; October 27, 2021, Filed
Case No. 16-cv-03938-RS
ORDER DENYING MOTION FOR CLASS CERTIFICATION
Lead Plaintiffs Robert Wolfson and Frank Pino ("Lead Plaintiffs"), together with plaintiff K. Scott Posson (collectively, "Plaintiffs"), bring this putative class action to redress alleged violations of securities law committed by defendants Charles Schwab & Co and Schwab Corp. ('Schwab"). Plaintiffs allege that between July 13, 2011 and December 31, 2014 (the "Class Period"), Schwab routed customer orders to UBS Securities LLC ("UBS") in a manner inconsistent with Schwab's duty of best execution. Plaintiffs aver that Schwab made material misrepresentations by stating that it adhered to the duty of best execution and omitted key information about an agreement to route most orders to UBS for execution, [*3] without verifying that UBS was providing best execution.
Plaintiffs seek certification under Federal Rule of Civil Procedure 23(b)(1) and (b)(3). Class certification is inappropriate because there is no presumption of reliance in this case, and requiring individualized proof of reliance as to each plaintiff defeats the commonality requirement of Rule 23(a). Further, the lack of a presumption of reliance in this securities class action precludes establishing predominance as required by Rule 23(b)(3).
A. Schwab, UBS, and Equities Order Routing
Broker-dealers, such as Schwab, buy and sell securities such as stocks and bonds for their clients. After receiving an order from a client, the broker-dealer routes the order to a venue for execution. Although sometimes a client specifies the venue an order should be routed to, most retail orders are "non-directed," including the vast majority of retail orders placed with Schwab. Non-directed orders allow the broker to choose a venue for execution.
Securities laws and regulations place some limitations on how broker-dealers may execute orders, such as the duty of best execution. Broker-dealers, including Schwab, are required under Financial Industry Regulatory Authority ("FINRA") Rule [*4] 5310 to "use reasonable diligence to ascertain the best market . . . so that the resultant price to the customer is as favorable as possible under prevailing market conditions." See also SEC Rel. No. 34-37619A, 61 FR 48290 (Sept. 12, 1996) ("[The] duty of best execution requires a broker-dealer to seek the most favorable terms reasonably available under the circumstances for a customer's transaction."). When a broker-dealer considers whether its existing routing scheme provides the most beneficial terms for customer orders, the broker-dealer should consider, among other factors, price improvement opportunities,2 differences in price disimprovement,3 the speed of execution, transaction costs, and customer needs and expectations. See FINRA Rule 5310.09(b).
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2021 U.S. Dist. LEXIS 207499 *; 2021 WL 4990234
ROBERT CRAGO, et al., Plaintiffs, v. CHARLES SCHWAB & CO., INC., et al., Defendants.
Subsequent History: Appeal terminated, 01/20/2022
Prior History: Crago v. Charles Schwab & Co., 2017 U.S. Dist. LEXIS 90100, 2017 WL 2540577 (N.D. Cal., June 12, 2017)
orders, omission, routed, misrepresentations, broker-dealer, commonality, affirmative misrepresentation, class certification, class action, customer, certification