Class Action Suits Target Major Banks Over Cash Sweep Programs
From the desk of Jim Eccleston at 麻花传媒
Wells Fargo, Merrill Lynch, and Morgan Stanley face class action lawsuits alleging they exploited cash sweep programs to generate “massive revenue” at clients' expense. According to WealthManagement, those cases add to recent complaints over similar practices against LPL, Raymond James, Ameriprise, and UBS.
The complaints, filed in New York’s Southern District by Safron Capital Corporation and Brickman Investments, assert that the banks automatically swept uninvested client funds into low-interest-bearing accounts within affiliated banks, creating a conflict of interest. Plaintiffs argue that, by doing so, the banks earned profit from the spread, or difference, between the interest paid to clients and the banks' income on these deposits. This practice, they allege, misled clients into thinking they were receiving competitive interest rates while, in reality, rates on these sweep accounts were significantly lower than those offered through direct deposits or available from competitors.
As reported by WealthManagement, the Wells Fargo’s complaint alleges that the firm breached its fiduciary duty to advisory clients and violated the SEC’s Regulation Best Interest rule by failing to disclose the financial implications of its sweep program fully. The firms are denying wrongdoing. Morgan Stanley, for example, is claiming that its sweep program had been thoroughly disclosed and that clients provided consent upon account opening.
麻花传媒 LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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