On Aug. 8, 2018, SEC issued no-action relief under S.206(4) and Rule 206(4)-3).
- Allows investment adviser to pay Schwab cash for solicitation of advisory clients.
- SEC enforcement would otherwise stop IAs making payment directly or indirectly.
On Jul. 9, SEC fined Schwab for not reporting IA suspicious trades.
- Charles Schwab settled charges it failed to file suspicious activity reports (SARs).
- On trades of independent advisers it stopped using re custody of client accounts.
Lack of Suspicious Reporting
- Bank Secrecy Act (BSA) requires broker-dealers to report suspicious transactions.
- In 2012-13, firm terminated 83 independent advisers as conducted risky activity.
- Schwab determined behavior violated policy, and presented a risk to it or clients.
- At least 47 of the terminated advisers conducted trades via Schwab that it knew,
suspected, or had reason to suspect were suspicious and required filing of a SAR.
- Schwab failed to file SARs, on suspicious trades of 37 of the terminated advisers.
- Did not file SARs, where firm suspected adviser engaged in a range of suspicious
transactions not involving the outright misappropriation or misuse of client funds.
- Including trades involving possible undisclosed self-dealing or conflicts of interest.
- Charging client accounts excessive advisory fees; fraudulent client account trades.
- Advisor posed as a client to effect or confirms trades within the account of clients.
- Executing client trades and/or collecting fees without being registered as adviser.
- No SARs where suspected adviser misused client funds but client did not complain.
- Schwab has agreed to settle the charges by payment of $2.8 million civil penalty.
- SEC also granted Schwab a waiver of disqualification per Rule 506(d)(2)(ii), Reg D.