Advertisement
YOU ARE HERE: LAT HomeCollections

Schwab Fund Probe Finds 18 Late Trades

November 17, 2003|From Bloomberg News

In an e-mail sent to employees, Charles Schwab Corp. said Sunday that its investigation of illegal mutual fund activities had found 18 after-hours trades and five arrangements allowing investors to buy and sell rapidly.

Two employees who deleted e-mails sought in the investigation have been fired, the company said.

The after-hours trades, which are illegal, involved some of the more than 4,000 funds sold by rival fund companies that Schwab customers can buy and sell through the company's fund marketplace, a service Schwab pioneered, according to the e-mail sent by Chief Executive David Pottruck to employees.

The so-called market-timing arrangements, which allowed clients to trade fund shares rapidly, involved Excelsior funds offered by Schwab's U.S. Trust unit.

New York Atty. Gen. Eliot Spitzer, who started the investigation of the $7-trillion U.S. mutual fund industry, has subpoenaed Schwab records.

Pottruck said that two employees had attempted to delete e-mails sought in the probe.

"Two junior employees violated our ethics policy and deleted related e-mail files during the investigation for reasons we do not fully understand," Pottruck said in his message, which was sent to Schwab's 16,000 employees. "We have found those files in backup data sources and we are cooperating with the New York attorney general's investigation. The employees have been terminated."

San Francisco-based Schwab, the biggest discount broker, found market-timing arrangements had existed with five institutional investors. New management at the Excelsior Funds group had started to end these arrangements before Spitzer and security regulators began to investigate irregularities with mutual fund trades, the company said.

Schwab, which started selling other firms' mutual funds in 1992, is at least the ninth company drawn into the widening probe of the mutual fund industry. Since Sept. 3, when Spitzer initiated the investigation of the fund industry, more than 40 people have been suspended or fired.

The Securities and Exchange Commission has found that half of the 88 biggest U.S. fund companies had agreements to allow frequent trading that weren't publicly disclosed. Companies under investigation include Alliance Capital Management and Putnam Investments.

In the message to employees, Schwab said it supported mutual fund companies' efforts to discourage market timing of their funds.

Most of the late trades Schwab discovered were received on time, before 4 p.m. New York time, but had an adjustment after the deadline that may have been contrary to company policy, according to the message.

Advertisement
Los Angeles Times Articles
|
|
|