Schwab Corp. $1 million fine after "investment adviser" forgeries
This is a very alarming story: The NYSE has fined Schwab $1 million after non-employee "investment advisers" used forged letters of authorization and forged checks. Business Week has the report.
The forgery happened earlier in the decade, and no Schwab employees were involved, but nevertheless the company was fined for failing to supervise and protect customer assets. I couldn't find any other details relating to the incidents or the investigation, but Schwab has "agreed to hire an outside consultant to review its policies and procedures concerning disbursement of customer assets and detection of potential misappropriations," according to the Business Week article.
I suspect that if it happened at one company, it could have very well happened at another, especially on a system based on signatures and account numbers that are shared between investors and their advisers.
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I am having a really difficult time trusting the local chapter of the Better Business Bureau. After you hear the reasons why, I think you'll understand. Read
Renae Merle of the Washington Post reports Defense Department budget cuts may mark the end of good times for the defense industry: Read
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This opens up a whole can of worms that I've been concerned about but no one ever really talks about: what happens when there is a major run on these institutions?
Don't think it will happen? I had an account with Refco (currency trading). One of the largest, oldest, and prestigious trading instituions. Upon hearing about the CEO scandal, I immediately closed my account. A few days later I received a check and deposited the funds into my account. A week later I get an email from Refco that they've stopped payment on all checks and "re-activated" my account. They were willing to "credit" my account with the stop payment fee when the checked bounced.
Fortunately, the check cleared before the stop payment and I got out in time. I feel sorry for all the other people that didn't get out in time.
Now what happens if a similar scandal happens at a major brokerage firm? What about a major bank?
Yes, it's all "insured" by some institution or another but my confidence isn't high that these insurance agencies can reimuburse everyone billions of dollars held in these accounts in any efficient way. Most people hit by Katrina are still waiting for insurance adjusters months after the hurricane hit.
What's the solution? I don't know.
Oddly enough, the Fed reserve changed policy recently to hide what it's doing with the money supply:
http://www.federalreserve.gov/releases/h6/discm3.htm
Essentially, this will put all currency traders at a severe disadvantage since they won't know how badly the USD is being devalued.
