Articles Posted in YieldPlus

Today, Charles Schwab & Co. and Charles Schwab Investment Management agreed to settle securities fraud charges filed by the Securities & Exchange Commission (SEC) stemming from the YieldPlus fund. The settlement included an agreement to pay $118 million into a “Fair Fund” which will be distributed to harmed investors. In a related matter, the Financial Industry Regulatory Authority (FINRA) entered into an agreement with Schwab for the payment of $18 million to investors that will also be included in the Fair Fund. The payment of Fair Fund distributions is subject to approval by the U.S. District Court for the Northern District of California.

The findings made by the SEC and FINRA are set forth in the following press releases:

SEC Press Release

The San Francisco Chronicle reported today that Charles Schwab plans to terminate their agreement to settle a class action lawsuit filed on behalf of shareholders in Schwab’s YieldPlus fund–an ultra-short-term-bond fund. According to the Chronicle, Schwab has already put half of the $235 million settlement amount in escrow with the remainder to be paid in January. A hearing on Schwab’s decision is scheduled for November 18.

Numerous YieldPlus investors elected to opt out of the class action in order to pursue an individual securities arbitration claim against Schwab to recover their losses. The opt out deadline was December 28, 2009. According to an April 21, 2010, article in the S.F. Chronicle, Schwab paid approximately $48 million to resolve individual customer arbitration claims while another 194 individual arbitration claims seeking $34 million in damages were still pending at the time of the Chronicle’s article.

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Charles Schwab has agreed to settle a securities class action lawsuit filed in San Francisco federal court on behalf of investors who purchased its YieldPlus Fund. Without admitting liability, Charles Schwab has agreed to pay the plaintiffs $200 million in order to avoid trial which had been scheduled for May. Losses sought by the plaintiffs in the class action were as much as $802 million. The settlement has yet to be approved by the court. Also, investigations into Schwab’s handling of the YieldPlus fund by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are still ongoing.

Investors who purchased the Schwab Yield Plus (SWYPX and SWYSX) money market funds, have until December 28, 2009, to decide whether to remain in the pending class action lawsuit or affirmatively “opt out” and pursue a securities arbitration claim. The following investors will be automatically included as class members if they do not take steps to opt out of the class action:

  1. Those that purchased the funds between November 15, 2006, and March 17, 2008;
  2. Those that purchased the funds between May 31, 2006, and March 17, 2008; and

In a regulatory filing today, San Francisco-based Charles Schwab reported that it received a Wells Notice from the Securities and Exchange Commission (SEC) for alleged securities law vioations regarding its Schwab YieldPlus and Total Bond Market Fund.

A Wells Notice is is not a finding of wrongdoing. It is letter from the SEC advising the recipient of the enforcement staff’s decision to recommend that the SEC bring enforcement proceedings against the recipient. The letter will specify the violations that the SEC staff believes to have occurred and the relief the SEC intends to seek and the forum in which the SEC intends to bring an action. The violations will be described in fairly general terms.

More Information:

A Notice of Pendency of Class Action was issued in the class action matter In re Schwab Corp. Securities Litigation currently pending in San Francisco federal court. Investors who purchased shares of the Schwab YieldPlus Fund that qualify as class members will be automatically included in the class action, unless they submit a request for exclusion from class membership. The court’s deadline for opting out is December 28, 2009. YieldPlus investors who opt out may want to consider pursuing a claim for their losses through arbitration before the Financial Industry Regulatory Authority (FINRA), as many investors have already done.

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Blog Post: Securities Arbitration vs. Class Actions: Consider Your Options

A San Francisco federal judge has issued an order certifying a class action lawsuit against Charles Schwab & Co. alleging securities law violations in connection with Schwab’s beleaguered YieldPlus Fund. The parties are required to submit to the court by September 10, 2009, a proposed timeline for class members that want to opt out of the class action. An updated blog posting will be issued once the opt out deadline is known. Click here to view all YieldPlus blog postings.

Three Classes of Investors Are Included in the Class Action

The court’s order creates three different classes of plaintiffs. The three classes are:

  1. Yield Plus investors that acquired shares between November 15, 2006, and March 17, 2008.
  2. YieldPlus investors that acquired shares between May 31, 2006, and March 17, 2008.
  3. California residents who held shares in the YieldPlus fund on September 1, 2006.

YieldPlus investors not included in the above categories are excluded from the class action. However, investors omitted from the class still have the option of filing their own securities arbitration claim against Schwab to recover their YieldPlus losses. Unlike class actions, which must be pursued in court, individual claims must be submitted to arbitration before the Financial Industry Regulatory Authority (FINRA).

Yesterday, San Francisco-based Charles Schwab Corporation publicly denied recent allegations that it engaged in fraudulent marketing practices in the selling of Auction Rate Securities (ARS). These latest securities fraud allegations come from New York Attorney General Andrew Cuomo who has purportedly uncovered emails and testimony establishing that Charles Schwab brokers had little knowledge about these ARS investments when they recommended them to their unsuspecting customers. Cuomo’s office is also alleging that Schwab misrepresented these securities as a safe investment and failed to warn its customers about the impending collapse of the ARS market. So far, Charles Schwab has denied the attorney general’s allegations.

Schwab is already facing a slew of customer arbitration claims that allege similar misconduct in connection with the sale of its YieldPlus funds that were marketed to conservative investors as low-risk investments. I have been monitoring these cases and Schwab has been aggressively defending these cases with mixed results according to the results in cases that have already gone to hearing.

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Securities class actions are on the rise again. In 2008, there were 210 federal securities class actions filed, nearly half involved firms in the financial services sector.

Class Actions: Not for Everyone

For millions of consumers, participating in a securities class action is an almost effortless process. Class members are seldom required to do much more than submit a proof of claim and wait for their share of the recovery.

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