The Charles Schwab Corporation allegedly defamed and unlawfully interfered with the investment advisory services of a Republican money manager, according to a $100 million lawsuit filed on April 23 against the venerable firm.

The suit, filed by Dallas money manager Ed Butowsky’s Chapwood Capital Investment Management, alleges that Schwab terminated its relationship with Butowsky solely because of his political views, and reliance upon defamatory statements by third-parties.

Butowsky had a mutually successful relationship with Schwab for more than ten years, and had perpetually been in good standing with the SEC and Financial Industry Regulatory Authority (FINRA).  According to the lawsuit, he received a call in August of 2017 from Schwab’s Relationship Manager, Jennifer Pello, who allegedly said, “Senior Management would like to have a call with you,” and that the purpose of the call was to discuss Butowsky’s “political views and Trump”.

That call never materialized.  Instead, Butowsky says he spoke with Schwab’s in-house counsel, Kevin Lewis, who offered no specifics as to what Butowsky might have done that would result in Schwab’s termination of the relationship.

Butowsky believes that the named defendants — which include Schwab himself, President/CEO Walter W. Bettinger II, Executive VP Bernard J. Clark, Senior Executive VP Jonathan M. Craig, COO Joseph R. Martinetto, Executive VP Nigel J. Murtagh, Southern Region Managing Director William Bell and Legal Managing Director Kevin Lewis – relied entirely on false and defamatory statements regarding himself in terminating the relationship, and “made no effort to determine whether [the statements] were true.”

Specifically, Butowsky refers to bizarre claims made by New York attorney Douglas Wigdor and NPR’s David Folkenflik that Butowsky colluded with President Trump and Fox News to skew responsibility for Seth Rich’s murder to the Democratic National Committee. Butowsky believes Schwab management read the stories and, rather than investigate, cut ties with him.

“I’ve never spoken to Donald Trump in my life, nor does the President have any reason to even know who I am,” Butowsky says.  “All I did was offer to assist the Rich family in paying for a private detective to look further into their son’s murder.  The suggestion that the President and Vladimir Putin would have colluded with me is preposterous,” he says.

“Wigdor appeared on CNN multiple times to push his story, while Folkenflik disseminated his nonsense on NPR.  It’s 100% fake news, and I allege that Schwab bought into it without conducting a shred of due diligence.”

That’s not all Schwab did, however.

The firm allegedly sent letters advising both current and formerclients that it had cut ties with Butowsky – close on the heels of the Wigdor and Folkenflik media blitz.  Contacting former clients is not only abnormal when an investment custodian severs ties with a manager, it’s also a breach of contract (which Butowsky is suing for), and likely a violation of FINRA regulations.

Butowsky further alleges that Schwab concealed the reason why the Agreement was being terminated: that it terminated its business with Butowsky for political reasons. Rather than simply advise clients that Schwab was terminating the Agreement without cause, and for its own convenience, as its contract permits, Schwab deliberately withheld the information that Butowsky had done nothing wrong.

Instead, the absence of explanation created the implication and inference of serious legal and ethical wrongdoing, and that this “deliberate non-disclosure” was “intentional, fraudulent, deceitful and defamatory.”

Schwab had no comment.

As a result of Schwab’s apparent reliance on fake news, Butowsky lost a third of his clients, and it took weeks of burdensome travel to secure a new custodian.

There are numerous elements of Schwab’s behavior that speak to the credibility of Butowsky’s allegations.

First is Pello’s alleged statement that management wanted to speak to Butowsky about his “political views and Trump.” Butowsky was already a known Republican, and had been for years.  That politics should suddenly be mentioned by Pello when it did is suspicious, as is the fact that this call never materialized.

Why did Schwab (allegedly) send letters to Butowsky’s formerclients?  At a minimum, it carries the appearance that Schwab intentionally disparaged Butowsky.

In Lewis’ call to Butowsky, the former allegedly highlighted three issues between 2006 and 2016 as reasons why Schwab acted, yet when pressed, Lewis admitted that Butowsky hadn’t behaved improperly in any of these cases.  Why?

Why does Schwab refuse to provide the internal policies it allegedly relied upon to terminate Butowsky? Given the $100 million lawsuit, this information – if it even exists – will come to light during Discovery.

There was another bizarre exchange between Butowsky and Schwab’s Texas-based in-house counsel. That phone conversation allegedly began with counsel stating, “I heard you were running from the law.”  When Butowsky confronted him on the strange comment, counsel apparently said, “I have a doctor’s appointment that is more important than you. I don’t have to talk to you or give you a reason”.

All of this adds up to Butowsky’s chilling conclusion: that senior management at the largest asset custodian in the United States bought into fake news about one of their advisers, which activated their own political biases against Republicans, and subsequently acted in a way that significantly harmed an innocent businessman.

The Charles Schwab Corporation has a lot to answer for, and Republican investment advisors should be taking notes.

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