Company to Pay US$18 Million for Improperly Marketing Bond Fund
14 January 2011
The US Financial Industry Regulatory Authority (FINRA) has announced that it has ordered Charles Schwab & Company Inc (Schwab) to pay US$18 million into a US Securities and Exchange Commission fair fund to repay investors in bond fund called YieldPlus, which was managed by Charles Schwab Investment Management. FINRA found that despite the troubled mortgage-backed securities market, Schwab did not makes changes to its marketing of the fund. Scwab provided incomplete and inaccurate information about the fund, continuing to represent “YieldPlus as a relatively low-risk alternative to money market funds and other cash alternative investments”. Between 2006 and 2008, Schwab sold over US$13.7 billion in YieldPlus shares to customers, which represented 98% of the amount invested in ultra short-term bond funds. During this period, “Schwab’s solicited sales of YieldPlus totaled approximately $3.36 billion” and it “collected approximately $17.5 million in fees from sales of the fund”.
FINRA’s media release (11 January 2011)