A San Diego couple who allege fraudsters stole nearly $1 million from their retirement accounts and turned off electronic notifications that could have alerted them is seeking damages against Charles Schwab & Co., which held the funds, and Hightower Advisors, which actively managed them.
Phillip and Pamela Reed, in a lawsuit filed in California Superior Court in San Diego on July 1, contend that from July 2022 to March 2023, "dozens of suspicious and unauthorized withdrawals" depleted their accounts with Schwab.
"And, because the perpetrators who unlawfully accessed the Reeds' online Schwab account turned off all electronic transaction notifications, the Reeds were unable to discover the fraudulent account activity until it was too late."
The Reeds accuse Hightower Advisors of breach of fiduciary duty and professional negligence, and allege negligence, breach of contract, and breach of implied covenant of good faith and fair dealing against Schwab.
The couple also contend Schwab failed to 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 lawsuit says.
"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," the lawsuit says.
"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."
The Reeds have maintained several investment accounts, including retirement accounts, with Schwab since about 1991, and since 2020, Hightower, doing business as Frontier Investment Management Company, has actively managed their accounts, according to the Reeds' lawsuit.
Unbeknownst to the couple at the time, their Schwab accounts were compromised by unknown individuals at some point in 2022.
Starting around July 21, 2022, "the perpetrators commenced a series of unauthorized withdrawals from the Reeds' Schwab accounts that went undetected by either Schwab or Hightower," the complaint says.
The unknown fraudsters 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 Reeds allege.
Each of these dozens of transactions fell below the $8,000 threshold amount that prompts additional scrutiny from Schwab, the lawsuit says.
Before leaving on a three-month vacation in December 2022, the Reeds notified their primary contact at Schwab that they would be away for several months. By the time the couple left on their vacation, the perpetrators had surreptitiously changed their Schwab account notification preference from paperless to paper notifications, the lawsuit says.
"As a result, the Reeds did not receive any electronic transaction notifications while they were away. Instead, for the duration of the Reeds' extended vacation, at which time the perpetrators apparently knew the Reeds would not be home or able to review their mail, all Schwab account transactions were confirmed exclusively through paper notifications sent via U.S. Mail."
When the Reeds returned from vacation in March 2023, they reviewed 42 paper account statements that had been delivered in their absence. On reviewing the statements, the Reeds noticed numerous unauthorized withdrawals that depleted their account balances by about $982,000, the lawsuit alleges.
Security Guarantee
The Reeds notified Schwab shortly after discovering the unauthorized transactions, the suit says.
