Charles Schwab was slapped with a $1 million fine for failing to protect customer assets from a check-kiting scam engineered by its affiliated-but-independent registered investment advisors in mid-November.
New York Stock Exchange Regulation said that the former NYSE member failed to oversee “a number of its non-employee investment advisors” who were forging checks and letters of authorization to withdraw money from customer accounts for personal use. Schwab didn't admit or deny wrongdoing in the settlement.
Regulators have fined numerous full-service and independent broker/dealers for “failure to supervise” their advisors over the past several years, including Raymond James, Merrill Lynch and GunnAllen. But the Schwab settlement suggests that even firms that act primarily as custodians to their advisor clients, and have a longer leash on those relationships than b/ds do, can be held liable for wrongful advisor activity.
Among other things, regulators allege that between 1998 and 2003, when Schwab was still an NYSE member, it failed to conduct routine signature comparisons on wire instructions and to send confirmation emails to customers when funds were withdrawn from their accounts.
