Ed Butowsky charges Schwab with political bias in $100 million lawsuit

Adviser claims he was kicked off custodian's platform because of his political views

Apr 20, 2018 @ 5:08 pm

By Jeff Benjamin

Ed Butowsky, a Plano, Texas-based financial adviser who has been embroiled in a high-profile legal dispute related to the 2016 presidential election, has filed a $100 million lawsuit against Charles Schwab Corp. for kicking his advisory firm off its custodial platform.

The lawsuit, filed Friday afternoon in the U.S. District Court for the Eastern District of Texas, claims the termination is related to Mr. Butowsky' s personal political views.

The suit claims the custodian defamed Mr. Butowsky and his advisory firm, Chapwood Capital Investment Management, when he was wrongfully terminated after more than 12 years on the platform.

In addition to wrongful termination, Mr. Butowsky is also claiming Schwab violated the terms of a contract agreement by directly contacting his current and former clients multiple times leading up to the Jan. 22 termination.

According to the lawsuit, Mr. Butowsky was contacted by "Schwab senior management" in August 2017, requesting a meeting to discuss the financial adviser's "political views and Trump."

While Mr. Butowsky claimed he agreed to a meeting or phone call, the conversation with Schwab management never took place, according to the lawsuit.

"Rather, Schwab and its apex officials proceeded post-haste and with reckless disregard for the truth to defame Chapwood and Butowsky, disparage Chapwood's business, and intentionally and maliciously interfere with Chapwood's client relationships," the lawsuit states.

Mr. Butowsky, who is being sued for allegedly participating in a false and defamatory news story about slain former Democratic National Committee staffer Seth Rich, said Schwab has singled him out because of his conservative political views.

"It's almost like the Red Scare in the 1950s," he said. "An adviser shouldn't have to worry about his political views, and frankly I'm not even that big of a fan" of President Donald J. Trump.

Schwab spokesman Rob Farmer declined to comment "on the specifics of the pending litigation, which is still being reviewed."

However, when first contacted about the termination in February, Mr. Farmer responded with the following emailed statement:

"Schwab has terminated its relationship with Chapwood Capital Investment, under the terms of our contractual agreement, effective January 22, 2018. The decision was made following a thorough compliance review of concerns related to aspects of Chapwood's business and investment practices. The termination allows Chapwood sufficient time to find alternative custody arrangements. As is customary in these situations, we also notified the firm's clients of our decision and provided options for managing a transition."

According to Mr. Butowsky's lawsuit, prior to the termination, Chapwood had "a stellar reputation, growing business and assets under management of more than $237 million. Because of Schwab's intentional wrongdoing, Chapwood's assets under management plunged by over $45 million. Chapwood lost over 268 customer accounts and suffered a substantial loss of income."

Mr. Butowsky' s lawyer, Steven Biss, said Schwab showed bias by leaving the impression in its correspondence with Chapwood's current and former clients that Mr. Butowsky had done something wrong.

"The insinuation was that Chapwood had done something wrong," Mr. Biss said. "All Schwab had to do was say this is not a performance termination, and say they don't want to be involved due to all the notoriety, then the clients would have come to the conclusion that there was good cause for the termination. It's the way they did it. It's what they didn't say."

Mr. Butowsky said he was first notified of the termination by Schwab two weeks following a news report on Aug. 1, citing claims that Fox News Channel and Mr. Butowsky "worked in concert under the watchful eye of the White House to concoct a story about the death of a young DNC aide," who was murdered on July 10, 2016 in Washington, D.C.

The murder remains under investigation.

The Fox News story, which has since been retracted, claimed that Mr. Rich was killed because of his alleged involvement in providing WikiLeaks with DNC documents that were damaging to Hillary Clinton's presidential campaign.

Mr. Butowsky, who is currently named in three defamation lawsuits related to the retracted story about Mr. Rich, said Schwab's "cold and callous tactics" have hurt his livelihood as well as the livelihood of his employees.

Further, he said Schwab never directly talked with him about the termination or gave him a chance to present his side of the story.

"Schwab never asked a question, they just assumed it was all true," Mr. Butowsky said. "I reached out to every single Schwab board member personally, and not one would have a conversation with me, and the ones I got a hold of, hung up on me."

Mr. Butowsky said he even called Schwab chairman Charles R. Schwab "six times" without any success in trying to speak with him.

Mr. Butowsky, who has $192 million under management at Chapwood, according to a March 23 Form ADV filing, said Schwab's letters to current and former clients have negatively impacted his advisory business.

"We couldn't go out and bring in new business, we didn't have any place to open new business, all because somebody at Schwab didn't like my political views," he said.

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