May 11 (Reuters) - A federal court judge on Friday threw out a lawsuit by Charles Schwab Corp that sought to stop its regulator from bringing a disciplinary case against the company for trying to take away customers’ rights to sue it in class-action lawsuits.
Magistrate Judge Elizabeth Laporte of the U.S. District Court for the Northern District of California late on Friday granted a request by the Financial Industry Regulatory Authority to dismiss a lawsuit that Schwab filed against the regulator in February. The San Francisco-based brokerage sued FINRA, Wall Street’s industry-funded watchdog, a day after the regulator announced an enforcement case against the company.
FINRA alleged that Schwab added a new provision to more than 6.8 million customer account agreements in October that would preclude them from starting or joining class-action lawsuits against the brokerage.
The case raised significant investor protection issues, according to lawyers.
Class actions are a common way for small investors to band together in a court case to recover their losses. A win by Schwab would set the stage for a showdown that could lead other companies to change their arbitration agreements and potentially weaken FINRA’s hold over its own enforcement process, they say.
Judge Laporte, in a 21-page opinion, agreed with FINRA that Schwab, which FINRA regulates, is required to follow its procedures for disciplinary cases. That process ultimately includes a review by a federal court judge.
A spokesperson for Schwab was not immediately available for comment. A FINRA spokeswoman declined to comment.