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- A FINRA arbitration panel ordered Charles Schwab & Co. to pay $1.34 million to family trusts following a crypto-related scam.
- The three-person panel awarded $1,339,822.11 in compensatory damages after hearings held from Sept. 1 through Sept. 4.
- Arbitrator Hector R. Diaz-Olmo dissented because the final award did not provide sufficient relief after legal expenses.
A FINRA arbitration panel ordered Charles Schwab & Co. to pay $1.34 million to family trusts after an 82-year-old client lost nearly $1.7 million in a crypto-related scam. The dispute centered on three wire transfers from his Schwab account to crypto platform Okcoin.
Family Accused Schwab of Missing Fraud Warning Signs
Cameron and Bryce Morthland brought the case as trustees of two David and Virginia Morthland family trusts. They accused Schwab of negligence, breach of contract, FINRA rule violations and breach of fiduciary duty.
Schwab denied the allegations and raised affirmative defenses. The claim was filed in February 2024. The late David Morthland was 82 when scammers allegedly convinced him that money had been refunded to him by mistake and needed to be returned. His family’s attorney also said the fraudsters gained access to his computer.
Schwab processed three wire transfers totaling nearly $1.7 million to Okcoin over three days, according to the attorney. About $350,000 was later recovered, leaving a claimed loss of $1,339,822.11.
FINRA Panel Awards Full Compensatory Claim
Following hearings held from Sept. 1 through Sept. 4, the three-person panel awarded the trusts $1,339,822.11 in compensatory damages. The amount matched the damages requested in the statement of claim.
The panel rejected other relief not expressly granted, including attorneys’ fees. Arbitrator Hector R. Diaz-Olmo dissented, arguing that the award did not provide sufficient relief after legal expenses and other costs.
“Giving ‘Half a Remedy’ is not giving a real remedy.”
FINRA Rules Address Senior Financial Exploitation
FINRA Rule 2165 allows brokerage firms to temporarily hold transactions or disbursements when they reasonably suspect financial exploitation of certain adults, including customers age 65 or older. Rule 4512 also requires firms to make reasonable efforts to obtain trusted-contact information for customer accounts. The arbitration award does not identify which specific FINRA rules the majority found Schwab violated or explain its legal reasoning.
Schwab Disputes the Decision
Schwab said it sympathized with the Morthland family but disagreed with the outcome. The firm said Morthland had been victimized by criminals and argued that the ruling disregarded established legal principles. The Sept. 10 award is final within FINRA’s arbitration system, although parties can seek limited judicial review in court.
