The Charles Schwab Corp. has won a $2.75 million arbitration award against a former adviser who is in prison for fraud.
The imprisoned adviser, Matthew D. Weitzman, was a co-founder of AFW Asset Management Inc., for which Schwab was asset custodian. In 2010, he was sentenced to 97 months for stealing more than $7 million from clients via fraudulent transfers.
The award resulted from a claim filed against Schwab in December 2009 by Mr. Weitzman's father-in-law, Burton Langer, a New York dentist, who claimed that Schwab was liable for his son-in-law's fraud.
Schwab later settled with Mr. Langer but pursued a third-party action against Mr. Weitzman as part of the arbitration case.
Details of the settlement with Mr. Langer were not disclosed, but in 2010, Mr. Langer asked the U.S. District Court for the Southern District of New York for restitution of $3.3 million.
Schwab fought Mr. Langer's court claim, alleging that he knew about the fraud. Schwab told the court that when it contacted Mr. Langer in 2006 about questionable disbursements of $1.4 million from his account, Mr. Langer said the funds were loans to his daughter and son-in-law.
The arbitration award, dated June 14, was released last Thursday by the Financial Industry Regulatory Authority Inc. Schwab spokeswoman Sarah Bulgatz declined to comment.
It's unclear if Mr. Weitzman will be able to pay the arbitration award.
As part of his sentence, Mr. Weitzman was ordered to pay $7.1 million in restitution.
According to court records, Mr. Weitzman this month paid $1.64 million to the court for investor reimbursement.
AFW had more than $190 million in assets under management at the end of 2008, according to the U.S. attorney for the Southern District of New York.
Between 2002 and March 2009, Mr. Weitzman submitted forged transfer documents to Schwab, the U.S. attorney claimed.
News of the arbitration award was
reported earlier by Dow Jones.
