Investigation into Charles Schwab's practices in its management of Schwab YieldPlus funds and the losses suffered during late 2007 and early 2008 as a result of in appropriate investment decisions made by the fund managers. Although the bond fund was promoted as a safe investment alternative to cash or money market funds, large positions were taken in risky mortgage-backed securities without proper diversification.
Schwab YieldPlus fund was first introduced by Charles Schwab in 1999. The discount broker initially offered other firms' mutual funds, but moved into offering their own funds to provide a more steady stream of revenue. Once they began offering proprietary funds, aggressive marketing allowed them to quickly grow the assets of their funds, and Schwab generated 23% of their revenue in 2007 off of service fees from their own Schwab and Laudus funds. Schwab brokers advised clients with that the Yield Plus bond fund would provide steady income with limited risk, leading many investors to switch from short-term certificates of deposits (CDs) to the Schwab Yield Plus fund based on the false and misleading representations. In an attempt to increase the bond fund's performance in comparison to other funds in the same class, fund managers decided to heavily bet on mortgage backed securities, including risky subprime loans. Despite stated fund objectives of seeking 'high current income with minimal changes in share price', more than half of the fund's assets were placed in one industry, and many of the collateralized detbt Following the collapse of the subprime mortgage market last summer, Schwab YieldPlus saw losses in excess of 25% during early 2008.
Defendant Details
Name (Stock Symbol)
Brief Description
Charles Schwab Corporation, The (SCHW)
The Charles Schwab Corporation provides securities brokerage, banking, and related financial services to individual, institutional, and corporate clients.