Schwab Has Plenty to Say About Mutual Funds

SAN FRANCISCONot surprisingly, the mutual fund scandal is a hot topic of conversation at Charles Schwab & Co.s yearly IMPACT conference. According to Jeff Lyons, Schwabs executive vice president for mutual funds, the firm has received several inquiries from the SEC, has sat in on meetings with the commission and has provided of information about its funds. Lyons, along with Schwabs president of investment

SAN FRANCISCO—Not surprisingly, the mutual fund scandal is a hot topic of conversation at Charles Schwab & Co.’s yearly IMPACT conference.

According to Jeff Lyons, Schwab’s executive vice president for mutual funds, the firm has received several inquiries from the SEC, has sat in on “several” meetings with the commission and has provided “lots” of information about its funds.

Lyons, along with Schwab’s president of investment management, Randy Merck, told various Schwab advisors that there was nothing to worry about.

We’re the 10th largest fund in the country—of course we’re going to get a letter of inquiry. But we have found nothing improper. We have lots of controls in place, the advisors say Lyons told them.

Other Schwab executives had plenty to say about the scandals.

Selected quotes:

  • “Re-earning investor trust in mutual funds is critical. We need a group effort to get the solutions we desperately need.” –Charles Schwab, founder and chairman of the company.
  • “We actually found out about some time-zone arbitrage a couple of years ago, before any of this ever came about. We confronted them about what they were doing, and they were upfront about it. They told us exactly what they were doing. We asked them to leave the fund, immediately. Until then, frankly, market timing was something that wasn’t on our radar at all.” –Nick Georgis, senior vice president and national sales manager, Schwab Institutional.
  • “We actually have contingent charges on any quick trades like that in our funds—an extra point and a half. Right now, we’re just turning over every rock and checking every corner, and we’re working with the SEC in every way we can.” –Randy Merck, president of investment management, Charles Schwab & Co.
  • “My biggest concern for our industry is that we stop stubbing our toes. There really has been a loss of a moral compass by some of our leaders. It has to stop. My biggest fear is that there will be a new flux of government legislation that overshoots the mark. The press has made it appear that [market-timing] is a rampant behavior in the industry, and that’s just not true.” –David Pottruck, president and CEO, Charles Schwab and Co.
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