Category Archives: Schwab YieldPlus Fund

Yield Plus and the words, Charles Schwab lawsuit, are becoming one and the same these days. Hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) over charges the San Francisco brokerage made false and misleading statements about the Yield Plus Funds and the extent to which investments were made in high-risk, speculative mortgage-backed securities.

Last week, Charles Schwab announced it had received a Wells notice from the Securities and Exchange Commission (SEC), in which the regulator outlined plans to recommend civil enforcement charges against the company over two Schwab bond funds.

Adding to the Schwab’s legal troubles: In August, a federal court in San Francisco certified a class action lawsuit on behalf of about 250,000 Yield Plus shareholders.

The Schwab Yield Plus Funds – the Schwab Yield Plus Funds Investor Shares (SWYSX) and the Schwab Yield Plus Funds Select Shares (SWYPX) – were initially offered as an safe, conservative investment alternative to money market accounts. Contrary to those representations, however, Schwab managers invested more than 45% of the funds’ assets in the mortgage industry. When the housing market crashed, so, too, did the value of the funds.

In May 2007, Yield Plus had more than $13 billion in assets. By March 2008, it was down to $2.5 billion. Today it has about $210 million.

Our lawyers are actively advising individual and institutional investors concerning the Schwab Yield Plus Funds. We have created an alliance with other experienced securities arbitration lawyers. Learn more about your  Schwab Yield Plus Funds. Tell us about your Schwab Yield Plus investments by leaving a message in the comment box, or the Contact Us page. We will counsel you on your options.

A warning from the Securities and Exchange Commission (SEC) in the form of a Wells Notice could have a direct impact on how Charles Schwab addresses current and future lawsuits and arbitration claims by investors who suffered losses in the  Schwab YieldPlus Funds.

The San Francisco-based brokerage acknowledged earlier this week that it had received the SEC’s Well Notice, which outlined possible civil enforcement actions against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the YieldPlus funds for alleged violations of securities laws in connection to the two fixed-income mutual funds.

Companies that receive Well Notices are given a chance to respond to the SEC’s allegations before the commission decides whether to approve an enforcement action. The notice is not a formal allegation or finding of wrongdoing.

On Aug. 21, a California federal court certified an investor lawsuit involving the YieldPlus Fund Select Shares and YieldPlus Investor Shares as a class action. As reported Oct. 15 in an article by Investment News, the Oct. 14 Wells Notice plus other various supporting documents could very well serve as a road map for the class action lawsuit, which some analysts and attorneys contend dwarfs individual arbitrations by hundreds of millions, if not billions, of dollars.

Regardless of the outcome of the SEC’s investigation, Schwab YieldPlus investors are under a tight deadline to decide whether to stay in the class-action lawsuit or “opt out” if they wish to file an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA). (Individuals are generally in a class action unless they formally ask to be excluded.)

The deadline to submit opt-out requests is Monday Dec. 28, 2009. In addition, investors must:

•Provide a written statement requesting exclusion from the Schwab YieldPlus class-action lawsuit;
•Sign and date the request and include your mailing address; and
•Ensure the written request is received by the Notice Administrator no later than Dec. 28, 2009. The address to mail the opt-out request is: Schwab Corp. Secs. Litigation Exclusion, c/o Gilardi & Co. LLC, P.O. Box 808061, Petaluma, CA 94975-8061.

Between Sept. 1 and Oct. 1, the date on which the most current available decision with FINRA is posted, Schwab has lost seven out of 10 YieldPlus FINRA arbitration cases, according to the Investment News article.

We are very interested in your situation with Schwab YieldPlus. Leave us a message in the comment box or the Contact Us form. We want to counsel you on your legal options.

A Financial Industry Regulatory Authority (FINRA) arbitration panel in Reno, Nevada, has ruled in favor of investors and their claim against Charles Schwab (SCHW) for financial losses suffered in the Charles Schwab YieldPlus Funds. In ruling against San Francisco-based Schwab, FINRA awarded Raymond and Elsie Kelly $74,430 plus interest, as well as $25,650 for attorney fees. In addition, FINRA assessed the entire costs of the arbitration proceeding – $5,250 – against Charles Schwab.

“Although Charles Schwab recommended the purchase of the Schwab YieldPlus Fund Select Shares (SWYSX) and the Schwab YieldPlus Investor Shares (SWYPX) as safe, conservative cash alternatives to investors, the evidence presented in this case clearly establishes that the funds were over concentrated in high risk, speculative mortgage-backed securities,” said the Kellys’ attorney Thomas Hargett of Maddox Hargett & Caruso, P.C.

Specifically, the Kellys’ arbitration claim (FINRA Case No. 08-02307) alleged that Charles Schwab marketed and sold the Schwab YieldPlus Funds as a conservative investment alternative to money market funds. In addition, the YieldPlus Funds supposedly offered a higher return potential with only marginally higher risks. In reality, the Schwab YieldPlus Funds held large concentrations of toxic subprime-related assets and other speculative products.

From June 2007 through June 2008, investors in the YieldPlus Funds lost 31.7%, while other ultra short bond funds experienced little or no losses.

Tumultuous upheaval in the financial markets has led to a rash of arbitration claims from retail and institutional investors on charges their financial advisors and brokerages misrepresented the risk levels of certain investment products. Some of the central players in these claims: Morgan Keegan & Company and Charles Schwab.

In the case of Memphis-based brokerage Morgan Keegan, investor complaints involve a group high-yield bond funds that the company allegedly marketed and sold as conservative investment options – products designed to provide high yields without excessive credit risks. Instead, the RMK funds made large investments in illiquid and toxic securities, including asset- and mortgage-backed securities and collateral debt obligations (CDOs).

Other funds responsible for the influx of arbitration claims include Charles Schwab & Co.’s YieldPlus funds. 

For more than a year now, investors nationwide have complained to the Financial Industry Regulatory Authority (FINRA), as well as the Securities and Exchange Commission (SEC), that Charles Schwab represented the YieldPlus funds as investments similar to money-market funds, while failing to disclose the fact they held large concentrations of toxic products like mortgage-backed securities. Ultimately, these holdings caused the YieldPlus funds to lose up to 80% of their value.

As reported July 6 by the Wall Street Journal, aggrieved individuals who do file claims with FINRA for their investment losses are likely to experience a more “investor-friendly” process than in the past because of recent changes to how an arbitration hearing is conducted and the composition of the arbitration panel.

Specifically, FINRA launched a pilot program in October 2008 that allows 276 cases against 11 participating brokerage firms to be heard annually by an all-public, three-person panel versus having one of the panel members associated with the securities industry. The program is a win for investor advocates, who contend having an industry-affiliated arbitrator reside on an arbitration panel not only can create bias but also sway other panel members against the investor.

Charles Schwab & Company has been hit with yet another arbitration award connected to its Schwab YieldPlus Fund. On May 29, 2009, a FINRA arbitration panel in Minneapolis, Minnesota, awarded more than $14,500 plus interest to Gary Wilhelm on claims of negligence and misrepresentation on the part of the San Francisco-based investor firm and the sale of the Schwab YieldPlus Fund. 

According to the award (FINRA # 08-02118), Wilhelm invested a portion of his retirement IRA in the Schwab YieldPlus Fund based on recommendations by Charles Schwab that it was a “safer alternative to money market funds but with higher yields.” Despite assurances from Charles Schwab that the YieldPlus fund was low risk, it actually contained a high concentration of mortgage-backed securities. Following the onset of the mortgage loan crisis in 2007, the Schwab YieldPlus Fund plummeted in value and produced millions of dollars in losses for investors.