Osaic hit with class action over cash sweep payments

Osaic hit with class action over cash sweep payments
The hybrid RIA is the latest firm to face allegations that it enriched itself at customers' expense by paying unfairly low interest rates in its cash sweep programs.
FEB 06, 2025

Osaic has become the latest casualty in the wave of cash sweep class actions that's washed across the industry over the past year.

A new class action against Osaic Holdings, Osaic, Osaic Services and Osaic Wealth profited at the expense of clients by paying less-than-fair rates on interest in cash sweep accounts.

The lawsuit, filed in the United States District Court for the District of Arizona by law firm DiCello Levitt, claims Osaic breached its fiduciary duties by structuring its cash sweep program to generate revenue for itself while offering account holders below-market interest rates.

The lawsuit against Osaic argues it directs uninvested client cash into interest-bearing accounts but retains a portion of the returns – referred to as the "spread" –for itself. It further alleges that the firm characterized its retained earnings as fees, when in reality, it is profiting from interest that should go to customers.

"This rate of interest Defendants keep for themselves can be as high as five to 21 times the rate paid to customers," the complaint read in part. 

"During the rising interest rate environment from March 2022 through the present, the profits that the Osaic Defendants have earned on their customers’ cash have grown exponentially. ... Defendants continue to exploit this opportunity for their own benefit, extracting the high rates of interest for themselves and thwarting their customers from receiving the reasonable returns they were legally entitled to."

The class action echoes themes from actions against JPMorgan, Morgan Stanley, and a bevy of other firms, highlighting questions around the potential for unfair treatment of customers.

Regulators have also taken notice of potential abuse in cash sweep programs, particularly at wirehouses. In January, the SEC hit Wells Fargo Advisors and Merrill Lynch with a collective $60 million in penalties over what it found were inadequate interest payments in the advisory accounts they maintained for clients.

“Osaic has a legal obligation to act in the best interest of its customers, but has continued to breach that duty by putting its own best interests ahead of its clients,” Brian O’Mara, a partner at DiCello Levitt, said in a statement Thursday. “After an extensive investigation into Osaic’s conduct, DiCello Levitt is leading the effort to prevent the company from continuing to enrich itself at the expense of its customers.”

The proposed class action seeks to represent US-based account holders who have participated in Osaic’s cash sweep programs. The complaint includes claims of fiduciary duty violations, gross negligence, unjust enrichment, and violations of the Investment Advisers Act of 1940.

“Our goal is to hold Osaic accountable, recover the financial losses experienced by our client and other customers, and reclaim the unjust gains made by Osaic,” O’Mara added. “We hope others who may have been impacted by Osaic or other financial institutions’ cash sweep programs also come forward.”

The plaintiffs in the case, Gehring v. Osaic Holdings Incorporated et al, are pushing for damages, restitution, and injunctive relief.

InvestmentNews reached out to Osaic for comment, but did not immediately get a response.

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