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
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
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
/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 /
CO: Charles Schwab
IN: FIN CPR
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8799 09/14/2004 12:33 EDT http://www.prnewswire.com