SEC makes Charles Schwab to pay $118.9 million fine and files a lawsuit

A largest discount brokerage and fund company Charles Schwab Corp will pay $118.9 million in fines to settle regulatory charges that it hid from investors the mortgage-related risks in a seemingly safe, multibillion-dollar bond mutual fund. This week the US Securities and Exchange Commission announced the settlement and filed a civil lawsuit charging two Schwab executives, Kimon Daifotis and Randall Merk, with violating securities fraud laws over how the Schwab YieldPlus fund was marketed.

Schwab expects a $97 million fourth-quarter after-tax charge for its settlement, which it said resolves related proceedings by the Financial Industry Regulatory Authority and Illinois regulators.

The amount of $118.9 million payment includes fines totaling $57.3 million and will be used for restitution to investors.

YieldPlus had about $13.5 billion of assets in more than 200,000 accounts in 2007, making it the largest "ultra-short" bond mutual fund at the time.

The settlement follows approval given last November by U.S. District Judge William Alsup of a $235 million agreement by San Francisco-based Schwab to settle a lawsuit by investors who said they lost $970 million by investing in the fund.

The SEC settlement requires court approval. Its civil case against Daifotis and Merk seeks fines and other remedies.