Charles Schwab has become the latest broker-dealer to come under fire from the Securities and Exchange Comission for failing to file Suspicious Activity Reports.
Schwab agreed to pay $2.8 million on July 2 to settle Securities and Exchange Commission charges that it failed to file SARs regarding the conduct of dozens of terminated advisors that the securities regulator claims violated the Investment Advisers Act.
According to the SEC complaint, in 2012 and 2013, Schwab failed to file SARs on suspicious transactions by independent investment advisors that Schwab terminated from its custodial platform. Schwab terminated the advisors for engaging in activity Schwab determined violated its internal policies and presented risk to Schwab or its customers.
“Schwab’s failure to file the SARs at issue resulted from its inconsistent implementation of policies and procedures for identifying and reporting suspicious transactions under the SAR Rule,” the SEC complaint states.
Although Schwab investigated and terminated the advisors, the broker-dealer/custodian “did not have clear or consistent policies and procedures regarding the types of transactions on which SARs needed to be filed,” the SEC states.
For instance, the complaint states that Schwab failed to file SARs in certain instances where it investigated and terminated advisors for conduct that led, or reasonably should have led, Schwab to suspect that the advisors had charged certain customers excessive advisory fees, had allowed their state registrations to lapse, or were engaged in schemes involving cherry-picking trades.
Further, “in a number of instances where Schwab investigated and terminated advisors for conduct that led, or reasonably should have led, it to suspect that the advisors misappropriated or misused client funds, Schwab applied an unreasonably high standard for determining whether to file a SAR on the suspicious transactions,” the SEC complaint said.