Oppenheimer was at risk of having to pay as much as $440 million in a class-action lawsuit over its "cash sweeps" policies. Instead, it has opted to settle for $70 million.
Oppenheimer's offer to settle, which the plaintiffs suing it have agreed to in principle, marks the first resolution of the big cash sweeps suits brought by investors over the past two years.
On Thursday, plaintiffs in a class action against Oppenheimer Holdings and its wealth management subsidiaries
Oppenheimer is among roughly two dozen firms that have been sued over the past two years over their cash sweeps policies. In general, cash sweeps refers to firms' practices of taking uninvested money sitting in clients' brokerage accounts and moving it over to a bank to be lent out at a higher rate. In Oppenheimer's case, the plaintiffs contended that the rate they received on their uninvested cash — sometimes as low as 0.25% — lagged far behind what the firm made for itself.
Trial date put pressure on Oppenheimer
In announcing last month its plan
That would have made it the first among the current round of cash-sweeps disputes to result in a trial.
"Given the lack of precedent in other cases and the inherent risks of a jury trial where the outcome could be worse than a negotiated settlement, the Company concluded that it was in the best interests of the Company, its employees, stockholders and other stakeholders to enter into an agreement to settle the claims," Oppenheimer said in a press release.
Representatives of Oppenheimer did not respond to requests for comment. Nor did lawyers representing the plaintiffs.
Sweeps suits ask why clients didn't receive benefits of rising rates
In announcing its settlement, Oppenheimer noted that although it was the first firm set to go to trial over its cash sweeps policies, it was in fact one of the last to be sued. The current wave of lawsuits began in June 2024
Many of the cases make much of the fact that rising interest rates in 2022 and 2023 — when the Federal Reserve was on a bid to tame inflation — meant firms were able to lend out money at increasingly higher rates. But rather than share those increasing returns with the brokerage clients who were providing the cash, according to the suits, firms kept most of the profits for themselves.
The plaintiffs suing Oppenheimer alleged that the firm's policy of "paying unreasonably low interest rates to Oppenheimer customers during sky-high interest rate environments breached their fiduciary duties and contractual obligations and otherwise violated New York law." The complaint gives no indication of how Oppenheimer may have calculated its possible liability at more than $440 million.
But it does note that Oppenheimer's returns from cash sweeps have been significant. From 2022 to 2023, for instance, income Oppenheimer derived from cash sweeps increased by more than 65% to nearly $173 million, according to the suit. That money was made on $3 billion in clients' uninvested cash.
One sweeps suit rejected, others proceed on modified terms
So far, only one suit over firms' cash sweeps policies has been rejected outright. In February, a
Other cash sweeps suits against large wealth managers have suffered minor setbacks while still being allowed to continue in court. Last summer, separate federal judges in California partly dismissed
Similarly, a federal judge in Arizona early this year partially rejected claims from three plaintiffs that the broker-dealer giant Osaic had underpaid them on cash held in its brokerage accounts. Rather than being rejected outright, the cases against Wells Fargo, LPL and Osaic were all allowed to proceed under modified terms.
