An arbitration panel has ordered Charles Schwab to pay more than $1.3 million to resolve allegations that it failed to respond to red flags indicating an elderly client had fallen prey to a crypto scam. Swindlers apparently convinced the man, 82 at the time, that he owed money in connection with a refund they said he received in error and gained access to his computer, according to Scott Greco, the lawyer for the claimants.

The victim has since died and the mechanics of the scheme aren't entirely clear, Greco says. "We don't know some of the details," he says, though he contends that three wire transfer requests that Schwab executed were "full of red flags."

Schwab acknowledged the client's losses but claims that it shouldn't be held responsible for reimbursing the client's two sons who brought the complaint.

"We empathize with the claimants, whose father was victimized by unscrupulous criminals," the firm says. "But we disagree with the decision, which disregarded basic legal principles. The best defense to these bad actors is prevention, which is why we advise our clients to be cautious, stay vigilant, protect their personal information, and approach financial transactions with skepticism."

One of the arbitrators on the three-person panel convened by Finra, the brokerage industry's self-regulatory organization, says the award didn't go far enough, and that the claimants should have received compensation for their legal fees, which amounted to about one-third of the $1.3 million the arbitrators settled on.

"The decision actually grants claimants a net amount that is two-thirds of the main amount they should have received," Hector Diaz-Olmo, the dissenting arbitrator, wrote in a statement. "We are in fact failing to provide the remedy needed and thus we fall short of complying with the regulations as well as not setting a standard by which all potential respondents will have to abide."

The complaint, brought by the sons of the victim, David Morthland, accused Schwab of negligence, breach of contract and fiduciary duty, and violation of Finra's rules.

Though it isn't entirely clear whether Morthland himself directed Schwab to make the withdrawals or the scammers initiated the requests by taking over his computer, Schwab executed three transfers of nearly $1.7 million to the crypto exchange OKCoin over three days, according to Greco. He says that investigators were able to recover around $350,000 of Morthland's losses, so that amount was subtracted from the damages the sons were seeking.

Greco rejects Schwab's claim that it shouldn't be held responsible for the losses.

"We disagree," he says. "Registered broker-dealers such as Schwab...have duties to have reasonable supervisory systems to detect and act on senior exploitation and scams such as this and they obviously did not do so."

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