Schwab Corporation :: Stock Broker Fraud Blog

Investors that bought Schwab YieldPlus Investor Funds Investor Shares and Schwab YieldPlus Funds Select Shares have filed a securities class action lawsuit against the Schwab Corporation, the underwriter and investment adviser connected to the funds, and several Schwab officers and directors.

The investor plaintiffs claim that the defendants misled them when they provided false statements about the funds’ lack of diversification and the degree to which the funds were exposed to subprime-backed securities. The plaintiffs say that the funds—marketed as a safe alternative to money market funds—actually had more than half of its fund assets invested in the mortgage industry.

The funds are down significantly. Through March 26, The Schwab YieldPlus Investor Fund (SWYPX) has fallen 17% , while the Schwab California Tax-Free YieldPlus Fund (SWYCX) has dropped by 9% . Investors say that the defendants were in violation of Section 11 of the Securities Act of 1933 when they misrepresented the funds to investors, marketing them with the goal of looking for high current income coupled with minimum share price changes.

Anxious investors left the Schwab YieldPlus Investor Fund when it dropped by about 3.6% in 2007. Fund assets reportedly fell from $13.5 billion in June 2007 to $2.5 billion last month. Fund managers must now sell bonds at depressed rates.

The Schwab California Tax-Free YieldPlus Fund (SWYCX)’s assets are down from $1.1 billion in mid-2007 to under $600 million this March. The source of the significant drop is attributed to its investments in variable-rate bonds connected to the London Interbank Offering Rate (LIBOR) index, which has fallen as liquidity has disappeared.

The investor fraud law firm of Shepherd Smith and Edwards represents investor clients that have lost money because investment advisers or stockbrokers engaged in misrepresentation, omissions, unsuitability, overconcentration, churning, failure to supervise, failure to execute trades, breach of promise/contract, breach of fiduciary duty, negligence, margin account abuse, registration violations, or unauthorized trading. Contact Shepherd Smith and Edwards for your free consultation to discuss your case.