Charles Schwab & Co. has been ordered by Finra arbitrators to pay a former client advisor nearly $350,000 for secretly helping one of his employees set up a competing RIA firm, according to a press release.

In a complaint filed with Finra in 2016, Joseph Ziomek, CEO of Laguna Financial Group Inc. (LFG) in Laguna Beach, Calif., alleged that Schwab secretly helped LFG’s chief financial officer, Kaitlin Hewell, establish her own RIA firm, for which Shwab was also serving as custodian.

Ziomek alleged that Schwab knew Hewell's firm would be competing directly with LFG and soliciting clients of LFG, and hid its involvement with the firm from LFG. Ziomek inadvertently found out about Schwab's role years later, according to Finra.

The complaint alleged that Schwab violated its own conflict-of-interest policies and procedures. Schwab subsequently terminated its custodial relationship with LFG.

The case, which was heard by a three-person arbitration panel from July 2018 to June, comprised 18 sessions, according to the release. Finra arbitrators on Friday found Schwab “liable for claims that stemmed from its breaches of internal policies and procedures regarding conflicts of interest and its surreptitious aid of its client’s chief financial officer to attempt to transfer away millions of dollars of managed assets and ultimately harm claimants’ business with whom Schwab had a pre-existing contractual relationship,’ according to Finra.’

Schwab said it disagreed with the ruling.

“While we disagree with the outcome of this case, we are pleased to have this matter behind us,” Schwab spokesman Peter Greenley said in an e-mail.

Schwab was ordered to pay $200,000 in compensatory damages, $100,000 in attorneys’ fees and $47,001.12 in costs. The panel assessed more than 75% of the hearing fees to Schwab.

“This case involved business and ethical violations by Charles Schwab in its capacity as a broker-dealer firm administering custodial platform services to an RIA,” said Robert J. Girard II, an attorney representing Ziomek and LFG. “Schwab lied about its involvement and took advantage of LFG’s reliance on Schwab’s supposed good faith dealings. While Schwab profited from this misplaced trust, the Finra panel administered the appropriate justice.”


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