Washington (Sept. 16, 2004) -- Charles Schwab & Co. Inc. agreed to pay $350,000 to settle charges by the Securities and Exchange Commission that it permitted some investment advisor customers to alter mutual fund orders after the market close.
The SEC charged that, on hundreds of occasions from January 2001 until October 2003, Schwab allowed certain investment advisor customers to change their orders after the 4:00 p.m. Eastern time market close, "creating the risk that such customers could unfairly capitalize on late-breaking news at the expense of other mutual fund investors."
The SEC said that Schwab let customers change orders when their original order, submitted before 4:00, wasn't accepted either because the fund in question was closed to new investors or the customer was banned for purchasing shares in a particular fund. Schwab would then allow the customer to submit a substitute order for a different fund after the market close had passed, yet still receive that day’s price, the commission said. Schwab stopped the practice in October 2003, following an inquiry by SEC staff and the initiation of its own internal investigation.
Schwab did not admit or deny the commission's charges.
Helane Morrison, district administrator for the SEC's San Francisco office, said that Schwab's "improper practices created an unacceptable risk that certain customers would be disadvantaged."
The commission said that Schwab didn't enter into any improper agreements with customers. It also noted that Schwab's customers didn't try to exploit the order entry process or circumvent its controls.
-- WebCPA staff
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