The Schwab comments came in a prepared statement released after the company’s settlements with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) were made public on Tuesday (see Schwab Hit with $136M in Fines Over YieldPlus Fund Marketing). Regulators charged Schwab did not accurately represent the fund’s risk level in its marketing; certain Schwab representatives said the fund was low risk although it had taken on significantly risky investments including volatile mortgage backed securities.
“To provide future protection for individual investors from similar market crises, the company hopes that greater focus and attention will ultimately be given to the investment banks that created mortgage-backed securities and the ratings agencies that legitimized them with triple-A ratings, which have so far largely escaped scrutiny and accountability,” Schwab contended in the statement, which denied all wrongdoing.
Losses suffered by YieldPlus shareholders were prompted by market conditions, not something for which Schwab should be blamed, the company said.
“Schwab would never seek to profit at the expense of its clients. We regret that fund shareholders lost money in YieldPlus. Indeed, Charles R. Schwab, the company’s founder and chairman, was one of the largest investors in the fund,” Schwab wrote. “The decline in the YieldPlus fund was the result of an unprecedented and unforeseeable credit crisis and market collapse. Until the credit crisis, the YieldPlus Fund was consistently one of the top performing funds in its category for eight years and held a Morningstar 5-star rating from December 2004 through September 2007.”
Schwab said in the statement that it would take an after tax charge of $97 million in its fourth quarter financial results relating to the settlements.