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Schwab paying $350,000 fine in mutual fund trading settlement

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Schwab paying $350,000 fine in mutual fund trading settlement

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WASHINGTON (AP) -- Brokerage Charles Schwab & Co. has agreed to pay a $350,000 civil fine to settle federal regulators' allegations that it illegally allowed certain customers to change mutual fund trade orders after the market's close.

The settlement announced Tuesday makes Schwab the first major discount brokerage to be penalized in the mutual fund trading scandal. In the past 12 months, several major fund complexes -- including Alliance Capital Management and Bank of America Corp. -- have paid hundreds of millions of dollars to settle improper trading charges. Fund executives, managers and traders have also been accused of wrongdoing.

San Francisco-based Schwab neither admitted to nor denied wrongdoing in its settlement with the Securities and Exchange Commission, although it did promise to refrain in the future from allowing illegal after-hours trading.

Starting in January 2001 or earlier, Schwab improperly allowed some customers that manage mutual funds to change their trading orders after the 4 p.m. Eastern stock-market close and still receive that day's fund price, a violation of securities rules, the SEC said. That way, the favored customers were able to capitalize on late-breaking news at the expense of other fund investors, according to the agency.

The SEC also said that "on hundreds of occasions" Schwab allowed customers who improperly submitted orders to submit new orders after the market had closed. Schwab employees would contact the customers after the market's close and allow them to make a substitute order in a different fund while still receiving the current day's price, the SEC said, in violation of securities laws.

The SEC order also notes that it found no evidence of "improper agreements with customers" or schemes to exploit the order process.

In afternoon trading Tuesday, shares of Schwab's parent, Schwab Corp., were down 7 cents at $9.62 on the New York Stock Exchange.

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On the Net:

Securities and Exchange Commission: http://www.sec.gov

Charles Schwab & Co. Inc.: http://www.schwab.com

AP-ES-09-14-04 1501EDT

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