Did You Lose Money Working with Charles Schwab & Co.?

Charles Schwab & Co. (CRD #: 5393) is a brokerage firm with a main address in Westlake, Texas. Kurta Law is investigating alleged failures of Charles Schwab & Co. to supervise its transmittal of funds to third parties, as well as other possible violations of securities rules and regulations. Failing to supervise transfers leaves investors vulnerable to theft and conversion. Investors who have suffered losses should keep reading.

Did Charles Schwab & Co. Fail to Detect Unauthorized Transfers?

Firms are required by FINRA Rule 3110 to supervise transactions to ensure compliance with securities rules and regulations. Especially large transfers are a red flag for theft and should prompt a responsible firm to conduct a thorough review.

Many firms, including Charles Schwab & Co., provide customers with a guarantee that the firm will cover any losses that occur due to unauthorized transfers. The Charles Schwab & Co. website advertises that the firm is “Dedicated to protecting your account and working with you to make it even more secure.” The website also states that Charles Schwab & Co. offers a “Security guarantee:” “We cover losses in your Schwab accounts due to unauthorized activity.” Investors should be able to rely on their brokerage firm to protect them from larceny.

Brokers with Disciplinary Records

Charles Schwab & Co. works with numerous brokers who have misconduct allegations on their records. The firm recommends that investors ask their broker, “As a financial professional, do you have any disciplinary history?”

Kurta Law is aware of the following brokers with misconduct allegations and regulatory actions on their records. This is not necessarily a complete list – contact Kurta Law if you have any concerns about your Charles Schwab & Co. broker.

• Ronald Cappuccio
• Kyle Kirkham
• Kevin Bailey
• Brady Jackson
• Gabriela Alfaro
• Barry Skolak
• Kathy Borkovec
• Yee Mei Chan
• Steven Brakman
• Rylan Wistrom
• Esdall Hilty
• Robert Heller
• Leonard Nelson
• Tim Traycoff
• Gus Mask
• Dylan Edrington
• Robert Disterhaupt
• Michael Giordano
• Matthew Black
• Elizabeth Swan
• Nicholas Bronson
• Caroline Ehlers
• Harlan Shulevitz
• Mary Murphy
• Brian Young
• Kordel Drake
• Miguel Montejano
• Joseph Moses
• Caroline Ellis

Conflicts of Interest and Fees

The Customer Relationship Summary (Form CRS) states, “The way we make money creates some conflicts with your interests. You should understand and ask us about these conflicts because they can affect the recommendations we provide you.”

The firm discloses that the following products provide fees for Charles Schwab & Co., and brokers who recommend them have a conflict of interest:

• Third-party fund providers and affiliated mutual funds pay shareholder service fees.
• Affiliated mutual funds and Exchange-Traded Funds (ETFs) pay the firm management fees.
• Rowe Price pays promotional and marketing fees for mutual funds and ETFs.
• Cash accounts – the affiliated bank earns money from cash deposits. The “spread” equals the difference between the money Charles Schwab & Co. makes and the interest it pays to customers.
• Dealer concession fees or transaction fees when Charles Schwab & Co. is trading as the principal in your accounts.
• Commissions or paid by insurance companies when you purchase an annuity or other insurance products.
• Order routing revenue from third-party broker-dealers and exchanges when Charles Schwab & Co. routes your order.

These are conflicts of interest for brokerage services – Charles Schwab offers several different types of investment advisory services that come with their own fees and conflicts of interest.

Regulatory Actions

Investors should be aware that Charles Schwab & Co. has a staggering 301 disclosures on its BrokerCheck record. The following are a few recent highlights, and investors can view the complete list of regulatory actions in the firm’s detailed BrokerCheck record.

FINRA Fined Charles Schwab $350,000 Following Exchange-Traded Note Allegations

On June 8, 2023, Charles Schwab & Co. entered into an Acceptance, Waiver, and Consent agreement (AWC) in which the firm consented to the findings that it sent its customers transaction confirmations that omitted required disclosures regarding its customers’ purchases of certain Exchange-Traded Notes (ETNs). The confirmations allegedly failed to disclose that the ETNs were callable, meaning that the firm could cancel them. These early redemptions could mean a reduced yield.

As part of the terms of the AWC, Charles Schwab consented to a $350,000 fine.

SEC Fined Charles Schwab $135,000,000 Following SIP Account Allegations

On June 13, 2022, the SEC alleged that certain investment adviser subsidiaries of Charles Schwab Corporation made false and misleading statements in Form ADV filings regarding the cash component of their Robo-Adviser Services, Schwab Intelligent Portfolios (SIPs). They allegedly falsely implied that an SIP account allowed investors to keep more of their money than other services that include advisory fees.

Each SIP had a pre-sent amount allocated to cash, and the affiliate bank earned a minimum amount of revenue by loaning out the money. Because of this revenue, Charles Schwab & Co. did not charge SIP accountholders an advisory fee.

Charles Schwab & Co. allegedly failed to disclose that under market conditions where other assets outperform cash, the cash allocations would lower returns by approximately the same amount as an advisory fee.

Charles Schwab & Co. allegedly claimed that the cash allocations were determined using a “disciplined portfolio construction methodology,” when, in fact, the amounts were pre-set in order to generate a certain amount of money for the affiliate banks.

The SEC issued a Cease and Desist and fined Charles Schwab & Co. $135,000,000. Additionally, the firm was ordered to repay $45,907,541 to affected investors.

Texas Fined Charles Schwab $95,000

On September 22, 2016, the Texas securities regulator alleged that the state failed to enforce its written procedures when it failed to timely remove the authorization of flagged power of attorneys who appeared to be in violation of Texas registration laws.  

Texas fined Charles Schwab & Co. $95,000. Charles Schwab & Co. also agreed to contribute an additional $35,000 to the Texas Investor Education Fund.

Kurta Law Can Help

Kurta Law wants to know if you lost money after working with Charles Schwab & Co. Our experienced investment fraud attorneys know how to hold brokerage firms responsible for unfair losses. Investors typically must go through FINRA arbitration in order to recover, a distinct process from suing in civil court.

Kurta Law attorneys offer free case evaluations and do not collect a fee unless we win your case. Contact us today for a no-obligation case review. Call (877) 600-0098 or email info@kurtalawfirm.com.