[ by Howard Haykin ] This former Charles Schwab executive, who had held lofty positions with the broker-dealer and the investment management affiliate, agreed to settle SEC charges that he had committed securities law violations in connection with the offer, sale and management of the Schwab YieldPlus Fund.  The alleged violations date back to the credit crisis and unprecedented housing market collapse of 2007-2008, and yet, the case remained open until July 2012, when the SEC accepted the respondent's offer. It is our understanding that much of the long delay is attributable to the Respondent, who along with another Schwab executive, chose not to settle early on with the SEC, and instead intended to pursue a vigorous defense fully contesting the allegations – that, according to a Schwab statement at the time. Respondent Kimon Daifotis. Kimon Daifotis was Chief Investment Officer (CIO) for Fixed Income of Charles Schwab Investment Management ("CSIM") until his position was eliminated in July 2008.  He also was an officer of Schwab Investments, SVP of CSIM, and oversaw the portfolio management of the Schwab YieldPlus Fund ("YieldPlus").  Daifotis was an employee of Charles Schwab & Co., the broker-dealer, and held Series 3, 7,  and 63 licenses.  Daifotis, 52, a resident of Corte Madera, CA, currently remains unemployed. SEC Findings and Allegations. The SEC alleges that Daifotis misled or failed to adequately inform investors about the risks of investing in YieldPlus.  The Commission cited the following as examples of false or misleading statements and representations that Daifotis supposedly made to prospective  investors:

• He misleadingly described YieldPlus as only slightly riskier than a money market fund.
• He falsely claimed that the Fund primarily held very short maturity bonds.
• He misleadingly failed to disclose YieldPlus’s substantial holdings of securities backed by "Alt-A" mortgages.
• He falsely stated that the level of redemptions that the Fund was experiencing were "very, very, very slight" or otherwise minimal in mid-August 2007.

The YieldPlus at the end of June 2007, according to Morningstar, had $13.5 billion in assets.  Needless to say, it was the top selling fund for Schwab.  Yet, 1 year later, 95% of those assets were gone – reduced by shareholder redemptions, enormous losses taken on sales of securities that raised the necessary cash to cover those redemptions, and losses incurred on its large holdings of mortgage-backed securities – which accounted for about 50% the portfolio. SEC Sanctions. Among other sanctions, Daifotis was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to apply for reentry after three (3) years to the appropriate SRO or, if there is none, to the Commission. For further details, go to:  [SEA of '34 Release #67454 and IA Act of '40, 7/18/12].