March 12, 2011

FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors

The Financial Industry Regulation Authority wants Charles Schwab & Company, Inc. to pay $18 million to a Fair Fund set up by the SEC to payback investors of the Schwab YieldPlus Funds. FINRA found that even after changes to the fund’s portfolio resulted in it being affected by the mortgage-backed securities market crisis, Schwab did not change its marketing of the fund and instead provided inaccurate material.

The FINRA order was announced just as the Securities and Exchange Commission revealed that $119 million settlement was reached with Charles Schwab & Co., Inc. and Charles Schwab Investment Management for their alleged misleading of Schwab YieldPlus Fund investors and failure prevent nonpublic information from being misused. According to the SEC, investors were not adequately told about the risks associated with the Schwab fund. Instead, they were provide with allegedly misleading statements, such as those claiming that investing in the ultra-short bond funds was only slightly riskier than investing in a money market fund. Read our earlier stockbroker fraud blog post for more information.

Schwab has said that it is still facing about 20 individual securities arbitration claims asking for $3 million in damages related to the YieldPlus Fund. Last year, it resolved federal and California state law claims—for $200 million and $35 million, respectively, over the fund.

In other recent Charles Schwab Corp. news, FINRA has announced that it isn’t going to recommend disciplinary action over the firm’s auction-rate securities sales to clients. Charles Schwab had received two Wells notices in 2009 indicating that regulators were recommending enforcement actions.



Related Web Resources:
UPDATE: Finra Won't Discipline Schwab For Auction-Rate Securities-Filing, The Wall Street Journal, February 25, 2011

SEC Reaches $119 Million Settlement with Charles Schwab, The Blog of Legal Times, January 11, 2011

FINRA Orders Schwab to Pay $18 Million to Investors for Improper Marketing of YieldPlus Bond Fund, FINRA, January 11, 2011


More Blog Posts:
Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors, Stockbroker Fraud Blog, January 17, 2011

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities, Stockbroker Fraud Blog, September 7, 2010


Continue reading "FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors" »

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Posted In: Charles Schwab , FINRA , Financial Firms , SEC Enforcement

January 17, 2011

Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors

The Charles Schwab Corp. has agreed to settle for $119 million Securities and Exchange Commission securities fraud charges that it misled investors about the risks involved in its Schwab YieldPlus Fund. By agreeing to settle, Schwab is not denying or admitting wrongdoing.

In 2008, the YieldPlus Fund dropped to $1.8 billion in assets after a peak of $13.5 billion in 2007. The decline happened because, rather than sticking with its stated policy, the fund invested over 25% of assets in private-issuer mortgage-backed securities. According to SEC Division of Enforcement Associate Director Antonia Chion, Schwab promoted the fund as a cash alternative that was supposed to be just slightly riskier than a money market fund even though at one point half the assets were in securities with credit quality and maturity that were very different from the type of investments that money market funds make.

Per the fund’s 1999 registration statement, YieldPlus was to only invest no more than 25% of its assets in one industry. The SEC contends that without obtaining shareholder approval, in 2006 Schwab changed the statement to say that it no longer thought of mortgage-backed securities as an industry. Last year, Schwab agreed to pay $200 million to settle with plaintiffs over the Schwab YieldPlus Fund.

The SEC has also filed a securities fraud complaint against Schwab executives Randall Merk and Kimon Daifotis over the offering, managing, and selling of the Schwab fund. Both men say that they will contest the allegations.

Related Web Resources:
Schwab to Pay $119 Million to Settle SEC Probe Over Misleading Statements, Bloomberg, January 11, 2011

Schwab Settles SEC Charges Over Allegations it Misled YieldPlus Fund Investors for $119M, ThirdAge, January 12, 2011

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Read the SEC Complaint against Merk and Daifotis (PDF)

Schwab Agrees to Pay $200 Million in Fund Settlement, Bloomberg BusinessWeek, April 20, 2010

Continue reading "Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors " »

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Posted In: Charles Schwab , Financial Firms , SEC Enforcement , Securities Fraud

December 6, 2010

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim

The US District Court has approved an amendment to the proposed Charles Schwab Corporation Securities Litigation settlement. The Supplemental Notice of Proposed Settlement of Class Action has been sent to the affected class members, which includes those who may have held Schwab YieldPlus Fund shares on September 1, 2006 and gotten more of them between May 31, 2006 and March 17, 2008. Shares may have been obtained through a dividend reinvestment in the Fund or through purchase. Affected class members cannot have been a resident of California on September 1, 2006.

The Supplemental Notice notes that there has been a clarification in the release claims’ scope that affected class members will be giving Schwab if they decide to take part in the settlement. More claims than those in the federal securities class litigation are now included in the amended release. Class members now have another chance opt out of the class action complaint.

Exclusion Deadline: Your notice of exclusion must be postmarked no later than January 14, 2011 and cannot be received after January 21, 2011.

Objection Deadline: Postmark must also be no later than January 14, 2011 and received no later than January 21, 2011.

There will be a fairness hearing on February 11, 2011.

For those that decide to proceed with the class, you don’t need to do anything to stay eligible. Class members will get the compensation for the federal securities claims that they were notified about in the previous notice about the settlement.

Filing an Individual Securities Claim Against Charles Schwab
For those of you that do choose to be excluded from the Charles Schwab class action case and any related benefits, you can file your own Section 17200 and/or federal securities claims and/or other possible claims. Filing an individual claim may allow a claimant to recover more than if he/she had stayed with the class action case. Individual investment fraud claims also take less time to resolve than do lengthy class action cases. Our stockbroker fraud lawyers represent clients with securities fraud cases against Charles Schwab.

To explore your legal options, contact our securities fraud law firm today.

Related Web Resources:
Read the Supplemental Notice

Schwab Yield Plus Settlement Frequently Asked Questions

Charles Schwab, Stockbroker Fraud Blog

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Charles Schwab , Class Action Lawsuits , Financial Advisers , Securities Fraud

September 7, 2010

Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities

A class-action securities complaint has been filed against Charles Schwab & Co. on behalf of investors that own Schwab Total Bond Market Fund (Nasdaq: SWBLX) shares that were purchased after May 31, 2007. The securities fraud lawsuit accuses Charles Schwab of causing the fund to deviate from its fundamental business objective, which was to track the Lehman Brothers U.S. Aggregate Bond Index, and of violating the California Business & Professions Code.

According to the plaintiffs’ legal representation, the defendant caused investors to suffer financial losses when it started investing in high-risk mortgage backed securities without letting shareholders know. Per the fund’s prospectus, Charles Schwab is supposed to obtain shareholder approval through a vote.

The plaintiffs contend that by investing 25% of the fund’s portfolio assets in high-risk, non-agency collateralized mortgage obligations (CMO’s) and mortgage-backed securities that were not part of Lehman’s US Aggregate Bond Index, Charles Schwab failed to stay true to its stated fundamental investment objective. They claim that this deviation led to tens of millions of dollars in shareholder losses because of the decline in the non-agency mortgage-backed securities value. According to their lawyers, the investors ended up experiencing a negative 12.64% in differential in total return for the fund compared to the Lehman Bros. U.S. Aggregate Bond Index from August 31, 2007 to February 27, 2009.

The investor plaintiffs are seeking restitution for all class members and for the return of management and other associated fees collected after the fund’s alleged deviation from its fundamental business objective.

Related Web Resources:
Class Action Lawsuit Filed Against Charles Schwab & Co., Star Global Tribune, September 7, 2010

Plaintiffs charge Total Bond Market Fund deviated from stated investment strategy, Investment News, September 7, 2010


Related Blog Stories Resources:
Schwab Must Pay SSEK Client $604,094 Over California Yield Plus Fund Investments, Says FINRA Arbitration Panel, Stockbrokerfraudblog.com, April 22, 2010

Securities Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigates Investor Claims Related to Short Term Bond Funds, Stockbrokerfraudblog.com, August 9, 2008

Continue reading "Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Charles Schwab , Class Action Lawsuits , Collateralized Mortgage Obligations , Financial Firms , Mortgage Backed Securities , Securities Fraud

April 22, 2010

Schwab Must Pay SSEK Client $604,094 Over California Yield Plus Fund Investments, Says FINRA Arbitration Panel

Our stockbroker fraud law firm is happy to announce that a Financial Industry Regulatory Authority panel has awarded one of our clients her entire principal loss of $604,094 for her securities fraud claim related to the Schwab California Tax-Free Yield Plus Fund. The award is not part of Schwab’s $200 million class action settlement.

Like Schwab’s Yield Plus fund, SWYCX was marketed as an ultra short-term bond fund and an alterative to money market holdings or cash. In fact, not only were the securities illiquid, hard to value, untested, thinly traded, and highly vulnerable to market changes, but the fund was exposed to variable-rate bonds that were pegged to the London Interbank Offering Rate.

Phone conversations recorded by Schwab with our client confirm the investor’s desire for safety of principal for her assets. During such exchanges, Schwab represented SWYCX as a better investment to Treasuries and Money Market and told the client that instead of holding such a large position in money market or cash for an extended time period it was better to place “cash” investments in the Yield Plus fund. Our securities fraud lawyers have other Schwab clients that were offered similar representations.

During arbitration, Schwab argued that any interest derived from the investment should be offset with the client’s principal loss, which would lower the damages by almost 50%. However, as Shepherd Smith Edwards and Kantas Stockbroker Fraud Lawyer Samuel Edwards noted, “Why should there be an interest offset for a product marketed as a money market alternative?” The FINRA panel agreed, awarding full capital loss, interest, costs, and legal fees.

Our stockbroker fraud law firm represents investors who sustained losses related to their Schwab investments. Your best bet for obtaining the maximum recovery possible is to speak with an experienced securities fraud lawyer about your case.

Related Web Resources:
Schwab Ordered to Pay Damages to Clients of Shepherd Smith Edwards & Kantas Over California Yield Plus Fund Investments("SWYCX"), iStockAnalyst, April 21, 2010

Schwab California Tax Free Yield Plus Fund, Financial Content

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Charles Schwab , Financial Firms

March 24, 2010

More on YieldPlus Mutual Fund: Charles Schwab Corp. Tries to Dissuade SEC From Filing Securities Claims

Charles Schwab Corp. doesn’t want the Securities and Exchange Commission to file securities claims over the YieldPlus mutual fund. Schwab contends that it never misrepresented the fund when it compared it to money market funds. The brokerage firm also says that it did not mislead investors, give certain ones more information than others, or let other Schwab funds cause financial harm to Charles Schwab YieldPlus Funds investors.

While the SEC has yet to file YieldPlus-related claims against Schwab, it did send the brokerage firm a Wells notice last year notifying that it may sue. Schwab had switched about half of its assets in the YieldPlus fund into mortgage-backed securities without shareholder approval. Following the housing market collapse, what was once the largest short-term bond fund in the world fund, with $13.5 million in assets in 2007, lost 35% before dividends. As of February 28, Bloomberg data shows that the mutual fund had $184 million in assets.

Even though the Investment Company Act of 1940, Section 13(a) states that a shareholder vote must take place before a company can do other than what its policies allow when it comes to which industries investments can be concentrated in, Schwab says it didn’t need approval because although the fund changed how mortgage-backed securities were categorized, it did not change its fundamental concentration policy.

However, in a March 19 court filing, the SEC said Schwab’s decision in 2006 that mortgage-backed securities without federal insurance aren’t subject to the fund’s 25% cap on “industry” investments and that these securities are not an industry was not just an act of “rejiggering.” Schwab invested almost 50% of the YieldPlus funds assets in these securities—despite the fact that its 1999 registration statement says that the fund will not concentrate investments in one industry. The SEC says that shareholder approval should have taken place not because the fund revised its classification about mortgage-backed securities as an industry but because 25% of the fund’s assets were invested in mortgage-backed securities.

In their securities fraud lawsuits, shareholders have accused Schwab of misleading them when describing the fund as “marginally riskier” than cash.

Related Web Resources:
Schwab Seeks to Fend Off SEC Lawsuit Over YieldPlus, Bloomberg/Business Week, March 23, 2010

The Charles Schwab Corporation : Schwab YieldPlus Funds Investor Shares or Schwab YieldPlus Funds Select Shares, Securities.Stanford.Edu

Securities and Exchange Commission

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Charles Schwab , Financial Firms , Mortgage Backed Securities , Mutual Funds , SEC Enforcement

October 15, 2009

SEC Warns Charles Schwab Corp. of Possible Civil Charges Over Two Bond Funds

Charles Schwab Corp. has received a Wells notice from the Securities and Exchange Commission about possible civil charges related to the discount brokerage’s Schwab Total Bond Market Fund and Schwab YieldPlus Fund. Schwab has been the target of regulatory investigations over the two funds and is a defendant in a number of civil lawsuits.

SEC staff members plan on recommending civil charges against a number of Schwab affiliates over possible securities violations. The Wells notice is not a finding of wrongdoing or a formal allegation. It does, however, give Schwab an opportunity to respond before the SEC makes a decision on whether to move forward with an enforcement action. The discount brokerage says the possible charges are unwarranted.

In San Francisco, Schwab is defending itself against a class-action fraud lawsuit in federal district court. YieldPlus fund investors are accusing the brokerage firm of failing to fully disclose the risks connected with some securities in the Schwab funds.

The brokerage firm says that during the first half of 2009, it paid $21 million to settle arbitration claims and lawsuits related to these investments. According to Investment News, between September 1 and October 1, 2009, Schwab lost 7 out of 10 YieldPlus Finra arbitration cases. FINRA says awards against the brokerage firm totaled $772,000.

FBR Capital Markets analyst Matt Snowling says the Wells notice could directly impact current and upcoming arbitration claims and litigation from investors who sustained losses from Schwab's two fixed-income mutual funds. Snowling says that the Wells notice and ongoing FINRA arbitration over the bonds funds increases the chances Schwab will likely have to settle the class-action fraud lawsuit.

Our securities fraud lawyers represent investors with FINRA arbitration claims against Charles Schwab. Please contact our stockbroker fraud law firm for a free case evaluation.

Please also refer to the ugent notice our securities fraud lawyers posted on our Blog site this week about what a Schwab YieldPlus investor must do to file a private claim.

Related Web Resources:
Schwab slapped with SEC warning; YieldPlus settlement may be on the horizon, Investment News, October 15, 2009

Charles Schwab Receives Wells Notice From SEC - Filing, WSJ, October 14, 2009

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Posted In: Charles Schwab , Financial Firms , SEC Enforcement

August 9, 2008

Securities Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigates Investor Claims Related to Short Term Bond Funds

SSEK law firm, which specializes in investor claims, is investigating compliants over the liquidity and security of so-called "ultra-short term" bond funds. Because these funds were sold as cash alternatives, any loss of principal is not acceptable. Recently, investors have experienced subtantial losses on a number of these funds, including:

SSgA (STATE STREET) Yield Plus Fund: Investors have accused this fund of violating Federal Securities laws. Usually considered a diversified portfolio with high quality credit and debt securities, and “sophisticated credit analysis” and decisions made by a team of investment professionals, the Fund was actually heavily invested in high-risk mortgage-related securities and mortgage backed securities.

Fidelity Ultra-Short Bond Fund: Investors claim that they were told the fund’s goal was to seek a high level of current income that was in line with preserving capital. The plaintiffs’ litigation, however, allege that such statements were misleading and false because the fund failed to properly disclose that it was heavily invested in high risk mortgage-backed securities.

Evergreen Ultra Short Bond Fund: According to recent litigation, investors bought shares because they were told that the fund’s investment goal was to “provide current income consistent with the preservation of capital and low principal fluctuation.'' Statements such as these are now being called misleading and materially false because the fund used a high-risk strategy (which it did not reveal to investors) that resulted in realized losses of about 18%.

Charles Schwab YieldPlus Funds -- Schwab YieldPlus Select, Schwab California Tax Free YieldPlus, Schwab YieldPlus: Charles Schwab has been accused of violating industry regulations and state securities laws when it allegedly mislead investors about the fund’s underlying risks. All three Schwab funds’ losses have been magnified by mass redemptions.

Oppenheimer Rochester National Municipals: Although not technically an ultra short term bond fund, this high-yield municipal bond can experience short-term volatility. These kinds of bonds are thinly traded and investors could suffer when the bonds are sold into an unreceptive marketplace.

Related Web Resources:

Shepherd Smith Edwards & Kantas LTD LLP Investigate Short Term Bond Funds, PrimeNewswire.com

Shepherd Smith Edwards & Kantas LTD LLP


Continue reading "Securities Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigates Investor Claims Related to Short Term Bond Funds " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bond Dealers , Charles Schwab

July 1, 2008

Investors Seek Arbitration Resolutions Against Charles Schwab for Alleged Securities Violations

Charles Schwab & Co. has recently been barraged with FINRA arbitration claims filed by investors alleging that the firm violated industry regulations and state securities laws. In their complaints, investors are accusing Charles Schwab of misleading them about the risks associated with certain mutual funds, including the degree to which the funds were exposed to the hazards of the sub-prime mortgage market. They say that rather than diversify the investments, the brokerage firm over-concentrated them in securities tied to the mortgage industry.

The claims cite numerous omissions and misrepresentations in mutual funds that the brokerage firm had underwritten, including those involving Schwab YieldPlus Funds Investor Shares (SWYPX) and the Schwab YieldPlus Fund Select Shares (SWYSX). The funds have undergone major losses recently, and investors claim these losses were not brought about by market events, but, rather, due to mismanagement by Schwab fund managers, including its failure to disclose key information to investors.

Investors say that in addition to Schwab’s alleged failure to diversify its fund assets, the brokerage firm also failed to reveal that Schwab’s leading broker-dealers issued most of the bonds that the funds held, there was no primary market for the majority of the bonds, and the firm’s credit and market analyst did not have the experience to evaluate the value and risk of mortgage backed securities.

Shepherd Smith Edwards & Kantas LTD LLP represents many of these investors, and we have helped thousands of people that have been the victim of broker-dealer misconduct across the United States recoup their losses. Contact Shepherd Smith Edwards & Kantas LTD LLP to schedule your free consultation.

Related Web Resources:

Shepherd Smith Edwards & Kantas LTD LLP Files $700,000 Arbitration Claim Regarding Schwab California Tax-Free YieldPlus Fund, Primenewswire.com, June 24, 2008

Charles Schwab & Co.

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Posted In: Charles Schwab

July 11, 2007

Schwab to Distribute $3.5 Billion to Its Shareholders by Buying Back Over 100 Million Shares

After sale if its U.S. Trust subsidiary to Bank of America for $3.3 billion, Charles Schwab Corporation has decided to distribute even more than the proceeds of that sale to its shareholders by buying back shares and paying a special dividend.

Under the plan, San Francisco-based Schwab will pay up to $22.50 per share for 84 million shares of its own stock -- 10 percent above the previous closing price. It will guarantee selling stockholders at least $19.50 per share, and also purchase up to 18 million additional shares from its founder. Charles Schwab will himslef receive over $400 million and will maintain his stake at its current level of 18%, which would be valued at over $4.5 billion.

The auction, which covers about 7 percent of Schwab's outstanding shares has already begun and is to be completed by July 31. In addition to $2.3 billion to buy the stock, in August Schwab will also pay $1.2 billion to shareholders through a $1 per share special dividend.

The U.S. Trust sale caused speculation that Schwab may buy one or more of its online competitors, such as E-Trade Financial Corp. or TD Ameritrade Holding Corp. Schwab repeatedly said it was not interested in any such takeover. Some of the speculation came from those wanting their shares in the other companies to be purchased. Two hedge funds publicly urged TD Ameritrade to seek a sale to E-Trade or Schwab.

Schwab’s chief financial officer said "We have conducted a thorough review of alternatives for deploying both the proceeds from the sale of U.S. Trust and our other available financial resources, and we believe this plan is an efficient means of achieving an appropriate level and mix of capital for Schwab."

Since Charles Schwab again assumed control of the firm three years ago, his shares and the other shareholders have tripled in value. The company lowered its commissions, stepped-up its "no-nonsense" investment advice and earned a record $1.2 billion last year.

Shepherd Smith and Edwards represents clients that are the victims of securities fraud. If you have lost money because of misconduct by someone in the securities industry, hiring an experienced law firm can increase the chances of recovering your losses. Contact Shepherd Smith and Edwards today.
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Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bank of America , Broker-Dealers , Charles Schwab

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