SEC Fine Broker AML Reports

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.

Suspicious Activity

  • 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.