Charles Schwab Corp. (NYSE:SCHW) has agreed to pay $118.9 million in fines as part of a settlement with the U.S. Securities and Exchange Commission regarding allegations that it made â€śmisleading statementsâ€ť, in marketing its relatively safe bond mutual fund by failing to disclose the fundâ€™s exposure to mortgages.
â€śSchwab marketed the fund as a cash alternative with only slightly more risk than a money market fund even though, at one point, half of the fundâ€™s assets were invested in private-issuer, mortgage-backed and other securities with maturities and credit quality that were significantly different than investments made by money market funds,â€ť said Antonia Chion, Associate Director of the SECâ€™s Division of Enforcement, in a release.
Schwabâ€™s settlement does not admit or deny the SECâ€™s charges.
The SEC has also filed suit against two Schwab executives, Kimon Daifotis and Randall Merk, charging them with violations of securities fraud laws in the way they marketed, sold and managed the Schwab YieldPlus fund. The case against both executives has not yet been settled and is in progress.
According to a release from the SEC, the YieldPlus Fund is the largest ultra-short bond fund in its category, holding assets of $13.5 billion under management in more than 200,000 accounts at its peak in 2007. The fundâ€™s assets fell to $1.8 billion for an eight-month period as a result of redemptions and falling asset values.
Shares of Charles Schwab Corp. fell slightly on Tuesday, sliding four cents, or a fraction of 1%, to close at $17.91.