Charles
Schwab & Co., Inc. (NASDAQ: SCHW) recently filed its written response to
allegations by the Attorney General of New York concerning the Company’s sale
of Auction Rate Securities (ARS) to retail clients. The full text of the letter
is available at “About Schwab” on the Charles Schwab & Co. web site.
“We are
disappointed that your Office has now publicly announced its intention to file
unwarranted charges against Schwab in connection with auction rate securities
(“ARS”) that suddenly became illiquid when the lead ARS managers that
underwrote, launched, and supported those securities suddenly backed away from
that market and allowed their auctions to fail. The Attorney General’s decision
to sue Schwab for a market calamity that it neither caused nor could have
foreseen is the foregone conclusion of an investigation that was driven from
the outset by a self-imposed mandate to reach a predetermined result:
nationwide buybacks of illiquid ARS by every firm, regardless of fault and
despite major differences in the roles that each firm played in the ARS market.”
“As your
Office learned during its investigation, unlike other firms, Schwab did not
underwrite any ARS, did not actively market ARS to its customers, did not buy
ARS for its own account, did not enter support bids in any auction, did not pay
its representatives any compensation for ARS transactions or otherwise induce
them to sell the product, and did not make and then break commitments to support
the ARS market. The Attorney General’s refusal to take these very significant
differences into consideration in this case is unjust. Schwab cannot agree to a
prepackaged resolution that unfairly punishes it and its shareholders for
events over which it had no control or ability to predict.”
“The
Attorney General’s demand that Schwab act as an insurer against an
unprecedented market collapse that it did not cause and could not predict is
legally unsound. More than that, it is unjust and a dangerous precedent. The
filing of any charges against Schwab is totally unwarranted, and the Company
will vigorously defend itself in court” stated Faith Gay a lawyer for Charles
Schwab & Co.
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