Chuck Schwab is gaining attention for his fight against New York Attorney Andrew Cuomo over whether Charles Schwab (the brokerage) should compensate clients frozen in auction rate notes.
That fight included penning an opinion article
for Monday's Wall Street Journal
. The paper follows up with a news report in its Tuesday edition
Schwab is the most prominent brokerage firm to refuse Cuomo's persuasions to settle. The list of distributors to settle includes close rivals TD Ameritrade and Fidelity Investments.
Schwab (the man) argues that as a distributor of the auction rate notes and not an underwriter, the broker has no duty to make the investors in the securities whole. Indeed, he argues that being responsible for the failure of securities that have a track record and liquid market at the time of sale -- such as auction rate notes -- would make remaining the fee-only broker model impossible. If that were to happen, Schwab would have to charge clients an advisory fee to compensate themselves from the risk, he argues.
Cuomo's office disagrees, and last week it filed civil fraud charges against Schwab (the brokerage).
Sean Hanna, Editor in Chief
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