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U.S. Securities and Exchange Commission

Effective November 4, 2022, This Letter is Withdrawn.
Please consult the following web page for more information: https://www.sec.gov/divisions/investment/im-modified-withdrawn-staff-statements.

Investment Advisers Act of 1940 — Section 206(4) / Rule 206(4)-3
Charles Schwab & Co., Inc.

August 7, 2018


We would not recommend enforcement action to the Securities and Exchange Commission ("Commission") under section 206(4) of the Investment Advisers Act of 1940 ("Advisers Act") and Rule 206(4)-3 thereunder if any investment adviser that is required to be registered pursuant to section 203 of the Advisers Act pays to Charles Schwab & Co., Inc. ("CS&Co."), or any of CS&Co.'s associated persons, as defined in section 202(a)(17) of the Advisers Act, a cash payment, directly or indirectly, for the solicitation of advisory clients in accordance with Rule 206(4)-3,[1] notwithstanding a final judgment as to CS&Co., which has been entered by the United States District Court for the Northern District of California (the "Final Judgment"), that otherwise would preclude such an investment adviser from paying such a payment, directly or indirectly, to CS&Co.[2]

Our position is based on the facts and representations in your letter dated August 7, 2018, particularly the representations of CS&Co. that[3]:

  1. It, directly or indirectly, will conduct any cash solicitation arrangement entered into with any investment adviser required to be registered under section 203 of the Advisers Act in compliance with the terms of Rule 206(4)-3 as if CS&Co. were not a disqualified person for purposes of Rule 206(4)-3 by virtue of the Final Judgment;
  2. The Final Judgment does not bar, suspend, or limit CS&Co., or any person currently associated with CS&Co., from acting in any capacity under the federal securities laws;[4]
  3. It has complied, and will continue to comply, with the terms of the Final Judgment, including, but not limited to, the Injunction and the payment of the civil monetary penalty; and
  4. Until ten (10) years from the date of the entry of the Final Judgment on July 9, 2018, CS&Co. and any person through whom CS&Co. directly or indirectly conducts its solicitation activities or any investment adviser with which it or any such person has a solicitation arrangement subject to Rule 206(4)-3 will disclose the Final Judgment in a written document that is delivered to each person whom CS&Co. or such persons solicit: (a) not less than 48 hours before the person enters into a written or oral investment advisory contract with the investment adviser; or (b) at the time the person enters into such a contract, if the person has the right to terminate such contract without penalty within five business days after entering into the contract.

This position applies only to the Final Judgment and not to any other basis for disqualification under Rule 206(4)-3 that may exist or arise with respect to CS&Co.

Thankam A. Varghese

Special Counsel

[1] Rule 206(4)-3 prohibits any investment adviser that is required to be registered under the Advisers Act from paying a cash fee, directly or indirectly, to any solicitor with respect to solicitation activities if, among other things, the solicitor is subject to an order, judgment or decree that is described in section 203(e)(4) of the Advisers Act.

[2] Securities and Exchange Commission v. Charles Schwab & Co., Inc., Case No. 4:18-cv-03942-KAW (N.D. Cal. July 9, 2018).

[3] This response confirms the no-action relief provided orally by the staff on July 9, 2018.

[4] Under section 9(a) of the Investment Company Act of 1940 (the "Investment Company Act"), as a result of the injunction ("Injunction") included in the Final Judgment, CS&Co. and its Fund Servicing Affiliates (as defined below) were prohibited from serving or acting as, among other things, an investment adviser or depositor to any registered investment company or as principal underwriter for any registered open-end investment company or registered unit investment trust. On July 10, 2018 and August 7, 2018, as applicable, the Commission issued orders temporarily and permanently exempting certain affiliated persons of CS&Co.:Charles Schwab Investment Management, Inc. ("CSIM", and collectively with CS&Co., the "Fund Servicing Affiliates") and any existing company of which CS&Co. was an affiliated person within the meaning of section 2(a)(3) of the Investment Company Act, and any other company of which CS&Co. may become an affiliated person in the future (together with the Fund Servicing Affiliates, the "Covered Persons"). In re Charles Schwab & Co. Inc., et al., SEC Rel. No. IC-33157 (July 10, 2018); SEC Rel. No. IC-33195 (August 7, 2018). Therefore, the Covered Persons are not currently barred or suspended from acting in any capacity specified in section 9(a) of the Investment Company Act as a result of the Injunction.

Incoming Letter

The Incoming Letter is in Acrobat format.


Modified: 6/2/2017