The Securities and Exchange Commission has charged Charles Schwab & Co. Inc., a registered broker-dealer, for allegedly failing to file suspicious activity reports on the suspicious transactions of independent investment advisers that it terminated from using Schwab to custody their client accounts.
The Bank Secrecy Act requires broker-dealers to report suspicious transactions that occur through their firms in order to help detect potential violations of the securities laws.
The SEC’s complaint alleges that in 2012 and 2013, Schwab terminated 83 independent investment advisers for engaging in activity that violated its internal policies.
The SEC claims that at least 47 of the terminated advisers engaged in transactions that Schwab knew, suspected, or had reason to suspect were suspicious and required the filing of a suspicious activity report. Schwab allegedly failed to file reports on the suspicious transactions of 37 of these terminated advisers.
The suspicious activity included transactions involving possible undisclosed self-dealing or conflicts of interest; charging client accounts excessive advisory fees; potentially fraudulent transactions in client accounts; posing as a client to effect or confirm transactions in the client account; and executing client trades and/or collecting advisory fees without being properly registered as an adviser.
The SEC also claims that Schwab failed to file reports where the terminated adviser was suspected of misusing client funds, but the client had not complained.
Without admitting or denying the allegations, Schwab agreed to settle the charges by paying a $2.8 million civil penalty and consenting to a permanent injunction.