September 20, 2018 / 8:22 PM / a month ago

TD Ameritrade, Schwab sue Goldman Sachs over stock-sharing agreement

NEW YORK, Sept 20 (Reuters) - Discount brokerages Charles Schwab Corp and TD Ameritrade Holding Corp filed suit against Goldman Sachs Group Inc in New York state court on Thursday over the investment bank’s bid to end a 17-year-old stock-sharing agreement.

The suit alleges that Goldman Sachs is violating a 2001 agreement reached when it acquired Epoch Partners, an online investment bank that Schwab, TD Waterhouse and Ameritrade founded for their investors to buy into initial public offerings.

Investment banks like Goldman Sachs make big money advising companies on IPOs, and in exchange they get a portion of shares to sell to their own clients or to other firms.

At the time of the acquisition, Goldman agreed to continue giving Schwab and TD some IPO and secondary public offering shares going forward, but Goldman is now trying to end the contract, saying it expired in 2007, lawyers for Schwab and TD wrote in the complaint.

Goldman spokesman Michael DuVally said the firm had the right to end the stock-sharing agreement, which he said the bank honored “well past a reasonable term.”

“In filing this lawsuit, plaintiffs are seeking to preserve a windfall entitlement they have enjoyed for over a decade under the theory that ‘reasonable’ means perpetual,” DuVally wrote in an emailed statement.

TD and Schwab’s agreement with Goldman enabled their mainstream clients to buy into newly listed companies at the same time as Goldman’s ultra wealthy clients, an opportunity TD Ameritrade spokeswoman Becky Niiya said is “increasingly rare.”

“It’s standard practice for investment banks such as Goldman Sachs to control who gets access to IPOs, often reserving their allotment ... for their ... clients,” Niiya wrote in an email. “This exclusionary process effectively serves to shut out smaller individual investors.”

Schwab spokesman Peter Greenley said the firm would fight Goldman’s attempt to reserve the shares of these IPOs for its own clients. He said this would not affect clients’ access to the broader publicly traded markets Schwab offers. (Reporting by Elizabeth Dilts Editing by Tom Brown)

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