The SEC faults three of the firm’s subsidiaries “for failing to disclose that they allocate client funds in a manner that is less profitable for their clients under most market conditions.”
Online broker Charles Schwab on Monday agreed to pay $187 million to settle a lawsuit from the US Securities and Exchange Commission (SEC), which accused him of misleading some clients about the allocation of their investments . The SEC accuses three subsidiaries of the company “failing to disclose that they were allocating client funds in a way that, according to their own internal analysis, was less profitable for their clients under most market conditions“, details a press release.
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Between March 2015 and November 2018, the firm ensured that the amount of money kept in cash in their wallets managed automatically by robo-advisors was decided according to “a disciplined methodology“in order to clear”optimal returns“. But it was determined that “in most market conditionsthe money kept in cash would have earned them more had it been invested otherwise, the SEC says. Charles Schwab, on the other hand, made a profit by using the money to lend it to other clients and pocket the difference between the interest earned on the loans and the interest paid to the owners of automated portfolios.
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$52 million in restitution of interest to clients and a fine of $135 million
“Schwab’s conduct has been outrageous and today’s action is a clear signal to advisors to be transparent with clients about hidden fees and how those fees affect their returns.commented Gurbir Grewal, an SEC official, in the statement. Charles Schwab, who neither admitted nor denied the SEC charges, agreed to pay $52 million in disgorgement of client interest and a $135 million fine. The group said,happy to put [cette affaire] behind [lui]“. “We believe that solving the problem in this way is in the best interests of our customers, our company and our shareholders, as it allows us to stay focusedon helping customers, is it added in a press release. Charles Schwab had already set aside $200 million to settle this case.
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