Finra backs down, won't discipline Schwab over ARS sales

Regulator hit brokerage with Wells notice in 2009, but declines to follow up with enforcement action

Feb 28, 2011 @ 3:19 pm

By Dan Jamieson

The Financial Industry Regulatory Authority Inc. won't be taking enforcement action against The Charles Schwab Corp. for sale of auction rate securities.

Finra told Schwab on Feb. 11 that it would not bring disciplinary action against the company.

Schwab disclosed the development in its annual report, filed with the Securities and Exchange Commission on Friday.

In November 2009, Schwab reported that it had received a Wells notice from Finra regarding ARS. A Wells notice informs a subject of a regulatory investigation that an enforcer intends to file charges, and gives the subject a chance to respond.

Schwab has insisted it did nothing wrong in selling ARS, arguing that blame lies with the underwriters of the securities, not so-called "downstream" firms like Schwab.

A civil complaint against Schwab filed in August 2009 by then-New York Attorney General Andrew Cuomo is pending. The complaint alleges Schwab misrepresented the risks of ARS to customers.

Aside from the threatened Finra action, the New York complaint is the only regulatory action Schwab has faced regarding ARS.

TD Ameritrade settled in 2009 with New York and the Securities and Exchange Commission over its sales of auction rate securities

Fidelity Investments reached a similar agreement with New York and Massachusetts in 2008.


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