Finra won't discipline Schwab over ARS sales

The Financial Industry Regulatory Authority Inc. won't be taking enforcement action against The Charles Schwab Corp. for the sale of auction rate securities
MAR 06, 2011
The Financial Industry Regulatory Authority Inc. won't be taking enforcement action against The Charles Schwab Corp. for the sale of auction rate securities. Finra told Schwab on Feb. 11 that it wouldn't bring disciplinary action against the company. Schwab disclosed the development in its annual report, filed with the Securities and Exchange Commission on Feb. 25. In November 2009, Schwab reported that it had received a Wells notice from Finra regarding auction rate securities. 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.

SHIFTING BLAME

Schwab has said that it did nothing wrong in selling such securities, arguing that the blame lies with the underwriters of the securities, not so-called downstream firms such as Schwab. A civil complaint against Schwab filed in August 2009 by then-New York Attorney General Andrew Cuomo is pending. The complaint alleges that Schwab misrepresented the risks of auction rate securities to customers. Aside from the threatened Finra action, the New York complaint is the only regulatory action Schwab has faced regarding such securities. 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. E-mail Dan Jamieson at [email protected].

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