Schwab gets into hot water

Schwab (SCHW) has a squeaky clean image. Charles Schwab has run the firm he founded for decades, except for a brief period when the company was owned by another financial operation. But Schwab has always been the public face of his company, which has a current ad campaign called "Ask Chuck." This not one of those impersonal, "full service" brokerage firms where customers never know the name of the head man or woman. The Schwab approach gives customers and the public the sense that someone they can count on is in charge.

But the company is risking its reputation by not settling its dispute with New York State over the financial firm's sales and marketing of auction rate securities (ARS). Almost every other company on Wall Street has made provisions to get customers all or most of their investments in ARS back. The financial instruments are interest-bearing paper that many investors, both individual and corporate, where told were as liquid as cash, but carried a slightly better coupon. As it turns, out, the ARS market was controlled by a small number of very large Wall Street firms that essentially shut it down in the early stages of the credit crisis because of the risks involved in making a market in the instruments.