Whoops: Schwab Sues Former Customer It Accidentally Sent $1.2 Million

Charles Schwab & Co. is suing a former client in hopes of recovering $1.2 million it says it had “inadvertently” transferred to her account at another online brokerage. 

In its lawsuit, filed on Tuesday in U.S. District Court for Eastern Louisiana, the discount brokerage claims Kelyn Spadoni of Harvey, Louisiana, has avoided Schwab’s calls and has “taken steps to prevent Schwab from recovering the funds.” The complaint does not name Fidelity Brokerage Services, where Schwab inadvertently sent the funds, as a party. 

San Francisco-based Schwab, which said it has also filed a complaint in arbitration, is seeking an emergency order from the court to prevent Spadoni from spending the funds in question before the firm’s claims can be heard by arbitrators. Allowing Spadoni to spend the funds in the meantime would render the arbitration process a “hollow formality,” it said. 

Judge Jay C. Zainey on Wednesday granted Schwab’s request to conduct discovery, including deposition of Spadoni, on an expedited basis in pursuit of its sequestration request, according to the case docket. The judge did not rule on the emergency motion. 

“After many attempts to recover the funds from the defendant directly, we are now pursuing all legal steps to reach that outcome,” a Schwab spokesman said.

Spadoni, who had no listed representation in the matter as of Wednesday afternoon, could not be reached for comment.

Spadoni’s case for holding onto the money is a long shot because she does not have a reasonable legal claim to the funds, according to Bill Singer, a securities lawyer.

“I hope Spadoni’s attorney has advised their client that not only could they be facing punitive damages and sanctions depending on whether or not they convert the funds, but that this could also easily wind up as a criminal case,” Singer said. 

Spadoni opened a Schwab One account—a “basic” brokerage account with no account minimums, according to Schwab’s website—in January. She closed the account after a month, and Schwab was attempting to transfer the $82.56 balance it said she was actually owed when it mistakenly sent the additional $1,205,536.84. 

Schwab representatives, who discovered the error the following day, tried to reclaim the errant transfer by contacting Fidelity, but it was too late, they said. Schwab attributed the error to “an issue created by a software enhancement” it had installed about a week before, causing “excess cash” to be added to a pending transfer request from Spadoni.

Schwab said Spadoni has not responded to its “numerous” attempts to contact her, including by telephone, text message and email. The firm’s corporate counsel called Spadoni at her work number, but her employer said she was “present but could not come to the phone,” according to the complaint.