Antitrust Suit Challenging Schwab-TD Ameritrade Deal Can Proceed, Judge Rules

An antitrust lawsuit seeking to unravel the Charles Schwab-TD Ameritrade merger may proceed following a recent federal court ruling.

The retail investor plaintiffs in the class action lawsuit against Schwab contend the 2020 deal substantially lessened competition, harming brokerage clients. Schwab had asked the court to dismiss the case.

Schwab’s TD Ameritrade acquisition formed “unprecedented market concentration,” giving the combined companies about half of all retail order flow payments, the plaintiffs claim in the suit. They seek monetary damages and an order divesting Schwab of TD Ameritrade assets or otherwise separating their business lines.

“When considering a motion to dismiss … the court must accept as true all well-pleaded facts in the plaintiff’s complaint and view those facts in the light most favorable to the plaintiff,” U.S. District Judge Amos Mazzant wrote on Feb. 24, denying Schwab’s motion to dismiss the case.

The court found Schwab’s arguments for dismissal “are unavailing at this stage of the litigation, and it finds that plaintiffs have stated plausible claims for relief” adequate to defeat the dismissal motion.

Among other points, Mazzant said plaintiffs’ contentions the deal had concentrated market competition are sufficient to survive the motion to dismiss. The plaintiffs, who allege they now pay higher transaction costs for their trades and suffer from diminished consumer choices in the wake of the merger, also have pleaded an antitrust injury sufficient for the case to proceed, he ruled.

“The court finds that plaintiffs have adequately alleged that anticompetitive results flow from the Charles Schwab-TD Ameritrade merger,” Mazzant wrote in his opinion and order. 

The judge also called it premature, given the case’s early stage, for Schwab to seek to bar the plaintiffs’ divestiture claim on the basis that they had waited too long to file the case.

While Schwab claimed the plaintiffs had failed to define a relevant product market in the lawsuit, the court at this stage must accept the plaintiffs’ allegations as true and therefore found they had sufficiently alleged such a market, the judge wrote. 

The plaintiffs define that market as the Retail Order Flow Market, in which retail brokerages aggregate and sell trades by retail investors to market makers, which execute the trades and pay the brokerages for the order flow, the judge noted. Brokerages rely on this model rather than charging clients traditional commissions, returning some order flow payment to customers as discounts, he noted.

Schwab issued a brief statement on the case:

“Allegations are not facts. We look forward to demonstrating the value and appropriateness of our approach in court. Any suggestion that the combination of these two client-centric firms has led to less favorable outcomes is simply not true. We will continue to aggressively seek the dismissal of this meritless case.” 

The case is Jonathan Corrente et al. v. The Charles Schwab Corp.

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