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Schwab To Pay $118 Million To Settle SEC Charges Over "Safe" Bond Fund

Tuesday, January 11, 2011 - 7:41 PM
Charles Schwab reached a settlement today with the SEC. Schwab agreed to pay almost $19 million. This had to due with a bond fund that had major losses in 2008. Schwab had marketed the fund as a safe alternative to a money market fund. Here's an excerpt from the SEC press release:
The YieldPlus Fund is an ultra-short bond fund that, at its peak in 2007, had $13.5 billion in assets and more than 200,000 accounts, making it the largest ultra-short bond fund in the category. The fund suffered a significant decline during the credit crisis of 2007 and 2008. Its assets fell from $13.5 billion to $1.8 billion during an eight-month period due to redemptions and declining asset values.

According to an administrative order issued by the SEC against the Schwab entities and the SEC's related complaints against the entities and the two executives filed in federal court in San Francisco, they failed to inform investors adequately about the risks of investing in the YieldPlus Fund. For example, they described the fund as a cash alternative that had only slightly higher risk than a money market fund. The statements were misleading because the fund was more than slightly riskier than money market funds, and the Schwab entities and Merk and Daifotis did not adequately inform investors about the differences between YieldPlus and money market funds.

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Ken TuminKen Tumin5,469 posts since
Nov 29, 2009
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