Ex-Chief Of Schwab's Funds Gets His Slap On The Wrist From YieldPlus Failure Hot

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On the one hand, it's good that the SEC kept up its lawsuit against Randy Merk, who used to run Schwab's funds.


Even after Schwab itself settled for a big $350 million, the regulators insisted on determining who was personally responsible for marketing YieldPlus as safe, even though it was making big bets on the pre-crash mortgage market.


Merk was the man at the top and was very active in pushing the fund, so chastising him sends a message to other executives who may not be actively selling bad products, but are coming up with them and encouraging others to move it to retail investors.


Unfortunately, that message may be, "do not pass go, do not collect $200."


Merk ran Schwab's sprawling fund complex -- well over $750 billion in AUM -- for nearly a decade.


They're fining him $150,000. Given what asset managers make, that might sting a little, but it's unlikely to be a big "teachable moment" for anyone in the industry.


Merk's peers in the industry are, at best, going to see this as the cost of doing business and not an object lesson.


I'm not arguing he deserved to be bankrupted or put in jail, since his product bent the rules but not the law.


But for selling a fund as "safe" and then watch it destroy $12 billion in capital in a single year, the penalty seems extremely light.

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