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Schwab Announces Settlement Related to Mutual Fund Order Processing

SAN FRANCISCO, Sept. 14 /PRNewswire-FirstCall/ -- The Charles Schwab Corporation today announced a settlement with the Securities and Exchange Commission (SEC) related to the processing of certain mutual fund orders. As part of the settlement, Schwab has agreed to pay a fine of $350,000 and consent to the entry of a cease and desist order without admitting or denying wrongdoing.

An internal review that began last fall found instances where Schwab employees allowed clients to place substitute mutual fund orders after the 4:00 pm market close when their original orders were rejected by Schwab's electronic order systems and could not be processed as originally submitted. All of the original orders were placed before the 4:00 pm market close. However, the SEC determined that a number of the order substitutions in question were not permitted under SEC rules.

The transactions in question represented only several hundred of the more than 34 million mutual fund trades executed by Schwab over the relevant three- year period. In its order, the SEC states that:

    * "The order substitutions were not the product of any formal or informal
      agreements ... " between Schwab and its clients;
    * "The Commission staff found no evidence of any scheme to exploit
      Schwab's order entry process or circumvent its controls";
    * "Schwab personnel did not receive any additional compensation in
      exchange for processing the substitute orders"; and
    * "Senior management at Schwab was not aware of the practice of allowing
      substitute trades after market close."

Although the SEC found that the practice at issue created a risk of "potential abuse," it did not find any instances where Schwab customers or employees actually placed trades based on the use of post-close market information.

Since these issues were identified, Schwab has implemented a number of enhancements to its systems and procedures, including improved oversight of order-processing activity; increased reporting and documentation of mutual fund order-processing activity and supplemental training.

    The SEC order can be found at http://www.sec.gov/litigation/admin.shtml

The Charles Schwab Corporation (NYSE/Nasdaq: SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. and its other operating subsidiaries, is one of the nation's largest financial services firms in terms of client assets. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at http://www.schwab.com/ , http://www.ustrust.com/ and http://www.cybertrader.com/ , respectively.

SOURCE  Charles Schwab
    -0-                             09/14/2004
    /CONTACT:  media, Greg Gable, +1-415-636-5847, or investors, Rich Fowler,
+1-415-636-9869, both of Charles Schwab/
    /Web site:  http://www.schwab.com /
    (SCH)

CO:  Charles Schwab
ST:  California
IN:  FIN CPR
SU:  LAW

HD 
-- SFTU082 --
8799 09/14/2004 12:33 EDT http://www.prnewswire.com


©2004 The Charles Schwab Corporation. All rights reserved. (2000-6422)
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