Charles Schwab fined $1m for failing to protect client accounts
16 November 2005 | 5116 views | 0
The New York Stock Exchange has fined brokerage firm Charles Schwab $1 million for allegedly allowing rogue non-employee investment advisors to steal from its clients' accounts.
In a statement, New York Stock Exchange Regulation - the part of the exchange that is responsible for enforcing compliance with exchange rules and federal securities laws - says that from 1998 through to the first quarter of 2003, Schwab failed to supervise and protect customer accounts and assets that were managed by investment advisors outside the company.
The NYSE panel says some non-employee investment advisors moved customer assets using forged letters of authorisation and forged cheques.
Although no Schwab employees were involved, the firm failed to maintain a separate system of follow-up and lacked adequate security procedures. Nyse says Charles Schwab failed to compare signatures on letters of authorisation and wire requests to original account documents, and also failed to send confirmations directly to the customer when assets are transferred to parties other than the person on the account.
The brokerage also failed to preserve and maintain electronic communications in the required format at various times from June 2002 to December 2003.
Nyse says Schwab's system of follow-up and review "were not reasonable to supervise and control money movements".
Susan Merrill, chief of enforcement, NYSE Regulation, says: "This case is a stern reminder that firms must have adequate procedures to supervise and control transfers of assets from customer accounts."
The panel says Charles Schwab has compensated affected customers and instituted corrective measures to prevent future violation. The broker also agreed to retain an outside consultant to review its policies and procedures concerning disbursement of customer assets and detection of potential misappropriations.
In agreeing the fine, Charles Schwab neither admitted nor denied the charges.