Schwab Fined for Lax Employee Screening

The brokerage shells out $250,000 under rules governing employees with criminal records.
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It's not quite a case of the inmates running the prison, but securities regulators have found that

Charles Schwab


did a poor job screening out brokerage employees with criminal records.


New York Stock Exchange

fined the San Francisco-based firm $250,000 for failing to comply with several regulations governing the hiring of employees with criminal convictions.

A regulatory investigation found that from February 1997 to September 2003, Schwab failed to promptly notify the NYSE that it had hired 55 full-time and temporary employees with criminal records. Big Board rules require brokerages to get permission before hiring a "statutorily disqualified individual," which includes anyone with a felony conviction in the past 10 years.

This is the second time in the past year that the Big Board has sanctioned a Wall Street firm for hiring employees with criminal records. Last year, the NYSE fined

Merrill Lynch


$300,000 for hiring 23 employees with criminal convictions.

Regulators also found that Schwab had an inadequate system in place for screening employees and temporary workers. Before the NYSE investigation, the firm didn't even require workers to voluntarily disclose any past criminal infractions.

Worse, even when Schwab learned about an employee's past misdeeds, regulators say the firm failed to do an adequate background investigation.

"The firm did not follow up to make sure it received court records for some individuals who were fingerprinted or who had disclosed criminal records to their line supervisors," the NYSE's order says.

Schwab, as is customary in regulatory investigations, settled the matter without admitting or denying the allegations.