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Schwab-TD Ameritrade Deal Draws Antitrust Challenge in New York

Dec. 30, 2019, 11:21 PM

Charles Schwab & Co. was hit with an antitrust lawsuit in Manhattan federal court challenging its planned $26 billion acquisition of fellow financial advisory giant TD Ameritrade Holding Corp.

The proposed deal would “transform” the $4 trillion wealth management industry, decimating smaller registered investment advisers (RIAs) that rely on Schwab and TD Ameritrade to serve as their “custodians,” according to the complaint.

The suit was filed pro se in the U.S. District Court for the Southern District of New York by BlackCrown Inc., a small RIA focused on advising mergers and acquisitions. It was filed Dec. 18 but docketed Dec. 30, court records show.

The large custodians both manage assets and provide support services to independent RIAs like BlackCrown. The tie-up between the two leading competitors would allegedly “disenfranchise a great segment of the industry by effectively establishing a caste system.”

It would worsen concentration in a market that’s already dominated by just four advisories, including Schwab and TD Ameritrade, according to the complaint.

“But the harm does not stop here,” the suit says. “The merger would also have a significant impact on innovation.”

Schwab and TD Ameritrade currently “push each other to improve their current products, services, and technologies,” according to the complaint. Eliminating competition between them would allegedly slash the incentives that drive those improvements.

Ordering TD Ameritrade’s custodial business sold to BlackCrown would “dissipate the anti-competitive effects” of the planned merger, the suit says.

Cause of Action: Sections 1 and 2 of the Sherman Act; section 7 of the Clayton Act.

Relief: An injunction blocking the proposed merger and requiring the federal government to step up its scrutiny of the deal; an order giving BlackCrown “the right to acquire” TD Ameritrade’s custodial business; costs.

Response: Schwab declined to comment Dec. 30.

Attorneys: BlackCrown filed the suit without an attorney.

The case is BlackCrown Inc. v. Charles Schwab & Co., S.D.N.Y., No. 19-cv-11578, complaint filed 12/30/19.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com

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