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WASHINGTON – Charles Schwab Corp. on Tuesday agreed to pay $118.9 million to settle regulators' civil charges over disclosure of the risks of a short-term bond fund.
The company called the steep decline of the YieldPlus Fund the result "of an unprecedented and unforeseeable credit crisis and market collapse" in 2007 and 2008.
The Securities and Exchange Commission announced the settlement with two Schwab units, Charles Schwab Investment Management and Charles Schwab & Co. Inc. The agency said Schwab marketed the fund as a conservative investment only slightly riskier than a money-market fund even though half its assets were invested in high-risk securities.
The Schwab units neither admitted nor denied the allegations in the settlement with the SEC, the Financial Industry Regulatory Authority — the securities industry's self-policing organization — and Illinois regulators.
Company founder and Chairman Charles Schwab lost money himself as one of the biggest investors in the YieldPlus Fund, according to the company.
"Schwab would never seek to profit at the expense of its clients," the San Francisco-based company said in a statement. "We regret that fund shareholders lost money in YieldPlus."
The SEC also filed a civil lawsuit against Kimon Daifotis, former chief investment officer for fixed income at Charles Schwab Investment Management, and Randall Merk, an executive vice president of Charles Schwab & Co. who was a trustee of YieldPlus and other Schwab funds. The suit alleges they committed fraud and other securities law violations in the offer and sale of the YieldPlus Fund.
Daifotis and Merk disputed the SEC's allegations and said they would contest them in court.
The company said it expects to take an after-tax charge of $97 million against its earnings for the October-December quarter for the settlement.
Before the credit crisis hit, the YieldPlus Fund was one of the top performing funds in its category for eight years, Schwab said.
The company called the steep decline of the YieldPlus Fund the result "of an unprecedented and unforeseeable credit crisis and market collapse" in 2007 and 2008.
The Securities and Exchange Commission announced the settlement with two Schwab units, Charles Schwab Investment Management and Charles Schwab & Co. Inc. The agency said Schwab marketed the fund as a conservative investment only slightly riskier than a money-market fund even though half its assets were invested in high-risk securities.
The Schwab units neither admitted nor denied the allegations in the settlement with the SEC, the Financial Industry Regulatory Authority — the securities industry's self-policing organization — and Illinois regulators.
Company founder and Chairman Charles Schwab lost money himself as one of the biggest investors in the YieldPlus Fund, according to the company.
"Schwab would never seek to profit at the expense of its clients," the San Francisco-based company said in a statement. "We regret that fund shareholders lost money in YieldPlus."
The SEC also filed a civil lawsuit against Kimon Daifotis, former chief investment officer for fixed income at Charles Schwab Investment Management, and Randall Merk, an executive vice president of Charles Schwab & Co. who was a trustee of YieldPlus and other Schwab funds. The suit alleges they committed fraud and other securities law violations in the offer and sale of the YieldPlus Fund.
Daifotis and Merk disputed the SEC's allegations and said they would contest them in court.
The company said it expects to take an after-tax charge of $97 million against its earnings for the October-December quarter for the settlement.
Before the credit crisis hit, the YieldPlus Fund was one of the top performing funds in its category for eight years, Schwab said.
