Charles Schwab Corp. is set to pay $119 million dollars in settlement fees after a lawsuit filed by the Securities and Exchange Commission (SEC) charged the company with failing to disclose the risks of its supposedly safe YieldPlus bond fund to investors.
Associate Director of SECs Division of Enforcement, Antonia Chion explains in a release appearing on foxbusiness.com that Schwab misled investors with marketing material which downplayed the funds actual risks:
Schwab marketed the fund as a cash alternative with only slightly more risk than a money market fund even though, at one point, half of the funds assets were invested in private-issuer, mortgage-backed and other securities with maturities and credit quality that were significantly different than investments made by money market funds, Chion says.
According to the LA Times online, Schwab responded to the allegations by saying that they had, [..] regretted the customer losses and that founder, Charles Schwab, had been among one of the funds largest investors.
Of the $119 million in fines being paid by Schwab, an estimated $110 million of the amount will be going back to the funds investors, who lawyers claim number around 250,000.
SECs Enforcement Chief, Robert Khuzami issued a reminder to [a]ll financial firms and professionals-- including large mutual fund providers in a statement on latimes.com that the group must, [] be vigilant in accurately describing the risks of the products they sell to the public, especially the widely held mutual funds that are the bread-and-butter investments of retail investors.
Despite the earlier regret expressed by Schwab, the company had settled the lawsuit without admitting or denying any liability in the lawsuit.
