Former Schwab fund manager settles with SEC

By Michael P. Tremoglie | Jul 18, 2012

NEW YORK (Legal Newsline) - The Securities and Exchange Commission announced Monday that Kimon Daifotis agreed to settle a case filed against him in 2011.

He was accused of fraud and other securities law violations in connection with the transactions of the YieldPlus Fund.

Daifotis was the former lead portfolio manager for the Schwab YieldPlus Fund, the Chief Investment Officer for Fixed Income for Charles Schwab Investment Management, a Senior VicePresident at Charles Schwab & Co. and an officer of Schwab Investments, the trust of which YieldPlus was a series.

YieldPlus was an ultra-short bond fund that had $13.5 billion in assets. It was the largest ultra-short bond fund in the category. It lost money during the credit crisis of 2007-2008. The asset value declined from $13.5 billion to $1.8 billion during an eight-month period.

The SEC alleged that Daifotis misled investors about the risks of investing in the YieldPlus Fund. The SEC furnished marketing communications whereby he described the fund as having a slightly higher risk compared to a money market fund.

But this was not true, the SEC claims. He also allegedly claimed the bonds were short-term when in fact they were long-term. Daifotis also did not reveal the fund's substantial holdings of Alt-A mortgages backed securities, the SEC says.

The settlement would enjoin him from future violations of certain provisions of the federal securities laws.

He would also pay $250,000 in disgorgement and a $75,000 civil penalty, which the SEC wants to include in an existing Fair Fund for distribution to injured YieldPlus investors.

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