Suspicious Transfers
"This case involves more than just red flags," the lawsuit contends, explaining that Rootenberg had reported a suspected hack before losing money from her Schwab accounts. Her daughter, who was a designated contact on the Schwab accounts, "begged Schwab to do something because of suspicious circumstances," it says.
Schwab repeatedly blocked and unblocked Rootenberg's accounts while allowing her life savings to slip out of them, the suit contends, saying the company knew their customer was being scammed and was privy to numerous red flags in Rootenberg's Schwab checking account and two brokerage accounts.
Red flags included out-of-character large and frequent transactions, big influxes of money to Schwab accounts as the scammers drained Rootenberg's non-Schwab accounts, constant money transfers between Schwab accounts, and wires out of the accounts, "including to companies that Schwab admittedly knows had been associated with scams of other customers in the past," the suit contends.
Schwab violated California's Elder Abuse and Dependent Adult Civil Protection Act and its Unfair Competition Law, according to the lawsuit, which alleges the brokerage and bank knew that Rootenberg's banking and investment activity mirrored the hallmark signs of financial elder abuse.
Among other points, the lawsuit alleges:
- In late January, scammers posing as federal agents told Rootenberg her identity had been stolen and directed her to sign an online document giving them remote access to her computer.
- She received two calls a day asking her to make transactions, which Schwab processed. Scammers also told Rootenberg what to say to financial institutions and coached her to tell no one what was happening.
- With Schwab's help, Rootenberg on Feb. 1 sold 54 individual stocks in a single day, totaling $17,000. That same day, other large sums were transferred between her various Schwab brokerage and checking accounts, leaving $91.16 in the checking account used to pay for her retirement residence.
- On Feb. 2, Schwab facilitated a fraudulent wire transfer of more than $132,000 for Rootenberg to buy gold for the scammers from the Bullion Exchange LLC, a company that a Schwab fraud investigator knew was affiliated with scams. Schwab didn't verify this transaction with Rootenberg or her daughter.
- Earlier that day, $46,000 had been moved from one Schwab account to another. Despite these red flags, Schwab failed to use the system it had set in place to alert its customers and their representatives of potential fraud.
- Other transfers between, into and out of Rootenberg's Schwab accounts continued over subsequent months. Company investigators notified her daughter in March about a suspicious wire. More large transfers occurred as Rootenberg's daughter pleaded with Schwab to lock the account.
- In April, the scammers had Rootenberg transfer $88,000 from Fidelity to Schwab accounts; Schwab soon processed a wire transfer of more than $78,000 to a gold bullion exchange from one of her accounts, after which she physically delivered the gold to a runner.
- Schwab locked the account only after an attempt to wire funds to an unknown party in Vietnam.
Schwab Responds
A Schwab spokesperson told ThinkAdvisor by email this week: "We sympathize with Ms. Rootenberg, whose exploitation by unscrupulous criminals is a stark example of the devastating impact of imposter fraud. We advise our clients to be cautious and skeptical and verify any unexpected requests before acting.
"As the federal government notes, balancing an individual's autonomy, safety and privacy is challenging. In this case, Schwab used its best efforts to help Ms. Rootenberg achieve that balance by involving her family and reporting the issue to Adult Protective Services, state securities regulators and law enforcement. We disagree with the allegations in the complaint and will respond in the appropriate forum."
