A San Diego couple has filed a lawsuit alleging they are the victims of a fraudulent scheme in which nearly $1 million was stolen from their retirement savings held by Charles Schwab & Co. and Hightower Advisors, ThinkAdvisor reports.
Phillip and Pamela Reed filed the suit in California Superior Court on July 1. They said that between July 2022 and March 2023, their online Schwab accounts were depleted by dozens of suspicious and unauthorized withdrawals. The fraudsters who accessed the accounts turned off all electronic transaction notifications so that the Reeds were unable to discover the fraudulent activity until it was too late, the lawsuit alleges.
Furthermore, the couple contended that “despite being paid to actively manage and monitor the Reeds’ investment accounts, Hightower never recognized a single suspicious transaction or the rapidly declining balances in the Reeds’ accounts. And because the amount of each unauthorized transaction fell just below Schwab’s threshold for heightened scrutiny, Schwab never noticed or questioned any of the suspicious withdrawals. Nor did Schwab fully honor its “Security Guarantee,” which purported to protect investors against losses caused by the precise type of unauthorized activity that depleted the Reeds’ retirement accounts.”
The Reeds accuse Hightower Advisors of breach of fiduciary duty and professional negligence, while alleging negligence, breach of contract, and breach of implied covenant of good faith and fair dealing against Schwab. They are seeking damages for losses sustained as a result of Schwab and Hightower’s breaches of their respective duties and contractual obligations.
The lawsuit states that the perpetrators stole the funds through numerous internal transfers from the Reeds’ retirement accounts to their family trust cash account, and subsequent transfers from the family trust to an unknown account at Wells Fargo Bank. The couple noticed the problem when they returned from a three-month vacation.
They said they did not receive any electronic transaction notifications when they were away because the fraudsters had been able to change their Schwab account notification preference from paperless to paper notifications, meaning that all Schwab account transactions were confirmed through the U.S. Mail.
When they came home in March 2023, they reviewed 42 paper account statements that had been delivered in the mail in their absence and found numerous unauthorized withdrawal transactions amounting to about $982,000. The Reeds notified Schwab shortly after discovering these transactions. They said Schwab’s Security Guarantee is supposed to provide “automatic protection” against losses caused by unauthorized activity.
Schwab agreed to reimburse $196,400 of the Reeds’ losses pursuant to its Security Guarantee, an amount reflecting 20% of the $982,000 total amount stolen. The couple claimed that Schwab breached a duty of care as their broker-dealer. They also assert that Hightower breached a duty of care because its Frontier Management brochure says the firm performs “ongoing portfolio monitoring, evaluation and rebalancing,” and “account reviews” on an “ongoing basis,” according to the lawsuit.
ThinkAdvisor reported that Schwab did not have an immediate comment on the lawsuit, while a spokesperson for Hightower said that the firm does not comment on pending litigation.
The attorneys at Lewitas Hyman have decades of experience dealing with securities fraud cases and have a deep understanding of how capital markets and financial service firms are intended to work to protect investors. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a no-cost evaluation of your matter.
