This is a securities class action lawsuit against a related entity to Charles Schwab alleging the Schwab Total Bond Market Fund's registration statement and subsequent supplemental prospectuses violated federal securities laws.
Schwab Investments emphasized the conservative nature of the Schwab Total Bond Market Fund's indexed securities by stating the Fund was designed to offer high current income by tracking the performance of the Lehman Brothers U.S. Aggregate Bond Index and was intended for investors seeking to fill the fixed income component of their asset allocation plan.
The class action complaint alleges that Schwab Total Bond Market Fund deviated from its stated investment objective by investing in high risk non-U.S. agency collateralized mortgage obligations (CMOs). The non-U.S. agency CMOs were not part of the Lehman Brothers U.S. Aggregate Bond Index and were substantially more risky than the U.S. agency securities and other instruments that comprised the index.
The class action lawsuit alleges that the Schwab Total Bond Market Fund also deviated from its stated fundamental investment objective by investing more than 25% of its total assets in U.S. agency and non-agency mortgage-backed securities and CMOs, while its investment objectives prohibited any concentration of investments greater than 25% in any industry, other than if necessary to track the Lehman Brothers U.S. Aggregate Bond Index.
According to the complaint the Defendants' deviation from the Schwab Total Bond Market Fund's investment objective exposed the Schwab Total Bond Market Fund and its shareholders to tens of millions of dollars in losses stemming from a sustained decline in the value of non-agency mortgage-backed securities.
As a result from the deviation of its stated investment objective caused a negative total return of 1.09% for the period September 4, 2007 through August 27, 2008, compared to a positive return of 5.92% for the Lehman Brothers U.S. Aggregate Bond Index over that period.
Name (Stock Symbol)
Charles Schwab Corporation, The (SCHW)
The Charles Schwab Corporation provides securities brokerage, banking, and related financial services to individual, institutional, and corporate clients.
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