Regulation and Compliance > Litigation

Schwab Sues Ex-Client Who Won’t Return $1.2M Sent by Mistake

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What You Need to Know

  • A software error caused an ex-Schwab client to mistakenly receive $1.2 million from the firm, it says.
  • Schwab alleges the defendant is guilty of breach of contract..
  • The money is no longer in the account, and the ex-client won't take Schwab's calls, according to the complaint.

Charles Schwab has sued a former customer that it says won’t return over $1.2 million to the firm after she received it by accident due to a software error by the company.

In a complaint filed Tuesday in U.S. District Court for the Eastern District of Louisiana, Schwab alleges ex-client Kelyn Spadoni of Harvey, Louisiana, was guilty of breach of contract because she “refuses to return more than $1.2 million that was inadvertently transferred to her Fidelity Brokerage Services account by Schwab.”

On Feb. 23, “due to an issue created by a software enhancement, Schwab mistakenly transferred these funds” to the defendant, according to the complaint. “Immediately after learning of the transfer, Schwab has contacted Fidelity and Spadoni repeatedly to request return of the funds.”

On or about Feb. 18, Schwab installed an enhancement to the software it uses for transferring assets to other broker-dealers, according to the complaint. The enhancement “inadvertently caused excess cash to be added to a pending transfer request to Spadoni,” Schwab explained.

Of the $1,205,619.56 accidentally transferred to Spadoni, “only $82.56 was properly transferred,” so she ended up receiving an overpayment of $1,205,536.84, according to the complaint.

“Fidelity has reported it is unable to return the funds because they are not available” and “Spadoni has refused to take Schwab’s calls, and instead, she has taken steps to prevent Schwab from recovering the funds,” according to the complaint.

Therefore, Schwab says it is “seeking a writ of sequestration to prevent Spadoni from rendering” arbitration before a Financial Industry Regulatory Authority panel “a hollow formality by dissipation of the funds in question before a panel of arbitrators can be assembled to rule on Schwab’s claims.”

According to Schwab, the account agreement that Spadoni signed provides that any ”controversy or claim arising out of or relating to” the agreement, her account, transactions in the account or “in any way arising from the relationship with Schwab … will be settled by way of arbitration” before FINRA Dispute Resolution.

The complaint is classified as “verified” because Brett Thompson, Schwab operations specialist, signed a statement at the end of it under penalty of perjury stating the allegations are true.

Not immediately clear was how often something like this has happened to Schwab.

A Schwab spokesman said only: “After many attempts to recover the funds from the defendant directly, we are now pursuing all legal steps to reach that outcome.”

Fidelity and Spadoni did not immediately respond to requests for comment on Wednesday.

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