SAN FRANCISCO--(BUSINESS WIRE)--The Charles Schwab Corporation today announced that two of its subsidiaries have entered into a resolution with the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and Illinois regulators related to previously disclosed investigations of the company’s Schwab YieldPlus Fund®. The company released the following statement.
Schwab has worked closely with these parties to bring this matter to a constructive conclusion, and believes that resolving it in this way is in the best interests of the company, its stockholders, and clients who experienced losses in the YieldPlus Fund as a result of the global financial crisis.
Schwab would never seek to profit at the expense of its clients. We regret that fund shareholders lost money in YieldPlus. Indeed, Charles R. Schwab, the company’s founder and chairman, was one of the largest investors in the fund. The decline in the YieldPlus fund was the result of an unprecedented and unforeseeable credit crisis and market collapse. Until the credit crisis, the YieldPlus Fund was consistently one of the top performing funds in its category for eight years and held a Morningstar 5-star rating from December 2004 through September 2007.
Schwab has acted in good faith by working with the SEC and FINRA to address their concerns as well as by resolving most client claims including entering into a substantial settlement of a federal class action lawsuit. We are pleased that the bulk of associated payments will go directly to YieldPlus shareholders, further reducing the impact of the credit crisis on them. Ultimately, our goal is to move forward and maintain our focus on our core purpose of providing individuals with the help they need to meet their investment objectives.
To provide future protection for individual investors from similar market crises, the company hopes that greater focus and attention will ultimately be given to the investment banks that created mortgage-backed securities and the ratings agencies that legitimized them with triple-A ratings, which have so far largely escaped scrutiny and accountability.
Charles Schwab Investment Management, a registered investment advisor, Charles Schwab & Co., Inc., a broker-dealer, and Schwab Investments, a Massachusetts business trust that issued the YieldPlus Fund shares, entered into the settlement without admitting or denying the allegations in the order. The settlement entered into with the SEC is subject to approval by a U.S. District Court.
The company is aware that the SEC has brought complaints today against two individuals associated with the firm, and its understanding is that each of those individuals intends to pursue a vigorous defense fully contesting the allegations.
As part of the settlement agreements, the company has agreed to pay a total of $119 million to the SEC, FINRA and Illinois regulators. The company expects to include an after tax charge of $97 million in its fourth quarter financial results relating to these settlements.
About Charles Schwab
The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.0 million client brokerage accounts, 1.5 million corporate retirement plan participants, 681,000 banking accounts, and $1.5 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com.