When big brokerage firms were being accused of conflict-of-interest in research, Charles Schwab & Co. was quick to capitalize on its rivals' embarrassment with a string of ads proclaiming Schwab's independence.
But that was a lie, according to a lawsuit filed Tuesday in Angeles Superior Court by Milberg Weiss Bershad Hynes & Lerach LLP, the law firm infamous for its frequent use of class action suits targeting big business.
Millberg, according to an attorney at the firm, alleges that, in fact, Schwab's ad were not only misleading, but claims in the suit that Schwab committed "fraudulent business practices." Why? Millberg says Schwab was in fact acting as an underwriter in equity offerings when the ads aired.
The suit seeks reimbursement for Schwab investors who purchased stocks in which the brokerage was an underwriter.
Attempts to get a comment from Schwab were unsuccessful at press time.
In its suit, Millberg cites several ads in which Schwab described itself as being independent and conflict free. But, according to the suit, "In truth and in law, Schwab was an underwriter at the very time that it represented to the public that it did not engage in underwriting.''
In the ads, Schwab's founder says, "We don't underwrite stocks, we only offer objective advice,'' the suit states, according to the law firm.
Schwab ridiculed Wall Street rivals in a string of ads, the most famous of which depicted a branch manager at an unnamed brokerage exhorting brokers to move a dog of a stock for the "incentives." "Let's put some lipstick on this pig," the manager says, "we got a lot of stock to move."