There has been a recent surge of lawsuits and regulatory actions against major banks and brokerages alleging that cash sweep programs pay unreasonably low rates while the banks/brokerages generate significant revenue. As is the typical trend, the largest banks and financial institutions have been targeted first—for example, Wells Fargo, Merrill Lynch, J.P. Morgan Chase, and Ameriprise—but opportunistic lawsuits against mid-size banks and brokerages will surely follow.
One recent decision that is noteworthy for financial institutions reviewing their cash sweep programs is the United States District Court for the District of Minnesota decision in Futo et al v. U.S. Bancorp et al. In Futo, the court held that the terms of, and disclosures contained in, the customers’ contracts reigned supreme. The Futo decision further reinforced the often-heard advice to banks and financial institutions to disclose, disclose, disclose and then disclose again. Making the required disclosures in the controlling contractual documents resulted in dismissal of all claims and the defendants saving millions in potential damages.
In April 2025, Adam Futo and Saul Ellis filed a complaint against U.S. Bancorp alleging that its subsidiary, U.S. Bancorp Investments, Inc. (“USBI”), shorted customers who participated in its cash sweep program. USBI offered its customers a number of brokerage accounts that allowed its customers to trade mutual funds, stocks, and securities. USBI offered those brokerage customers the option to also participate in USBI’s cash sweep program.
Under USBI’s cash sweep program, USBI continuously transfers uninvested cash balances in customers’ brokerage accounts into interest-bearing deposit accounts at U.S. Bank. Under the program, interest compounds daily on customer’s cash, and USBI pays interest to customers’ monthly. Mr. Futo and Mr. Ellis alleged that the average interest customers received was between 0.03% and 2.00%, whereas the average monthly federal funds rate was between 1.19% to 5.33%, and that other cash sweep programs were over 3.5%. Mr. Futo and Mr. Ellis alleged that Defendants’ below-market interest rates (BMIR) improperly benefited themselves while shorting the customers. Mr. Futo and Mr. Ellis’ complaint asserted a purported class action in which they estimated over $140 million in potential damages.
Such damages were avoided, and all claims dismissed, because the contract documents contained, among other things, the following disclosures:
- Notified customers of the option not to participate in the cash sweep program and to invest their account’s cash balances in products offered outside of the program;
- Explained that USBI received fees and benefits from the cash sweep program;
- Notified participants that the cash sweep vehicle “should not be viewed as a long-term investment option” and that money market funds carried “investment risk including the possible loss of the principal amount invested”;
- Stated that the interest rate available through the cash sweep program “may be higher or lower than the interests rates available” through other investment vehicles, and that “USBI has no obligation to ensure you receive a particular rate or the highest rate available.” The contract further stated that USBI “has no obligation to ensure you receive a particular rate [of interest] or the highest rate available.”; and
- Stipulated that “[W[hen [USBI] act[s] in a brokerage capacity, you will exercise your own independent judgment in determining whether to act on our recommendations. We are not your investment advisor or fiduciary unless we have expressly agreed with you in writing to act in such a capacity.”
While the court thoroughly analyzed each of Mr. Futo and Mr. Ellis’ seven claims—breach of fiduciary duty, negligence, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation and omission, violations of the Minnesota Consumer Fraud Act and the Minnesota Deceptive Trade Practices Act, and unjust enrichment—the Court repeatedly went back to the contract documents, held that the parties’ contract controlled, and determined that the claims must be dismissed in light of the terms, conditions, and disclosures contained in the parties’ contract. In short, in order to protect themselves, financial institutions should provide detailed risk disclosures (such as loss of principal, market fluctuations, and the potential superiority of other investment vehicles), clearly disclose the parameters of its fiduciary obligations, disclose obligations (or lack of obligations) regarding the rate of return, and disclose the benefits that the financial institutions receive.
At the end of the day, the safest path forward is to disclose, disclose, and disclose again because Courts look to the terms of the parties’ contract and those terms generally reign supreme.
