San Francisco, California — Three California retirees with principal losses totaling over $200,000 filed claims today against Charles Schwab & Co. and its former high-profile fund manager, Kimon Daifotis, asserting that Schwab deceptively marketed its Schwab YieldPlus Fund as a “cash alternative” with safety comparable to that of 1 and 2-year certificates of deposits.
The Schwab YieldPlus Fund, (SWYSX), which was marketed to investors as a safe, ultra short-term bond fund, actually contained high concentrations of mortgage- and asset-backed securities that exposed fund investors to the risk of substantial losses of principal, the claim asserts.
“The Schwab YieldPlus Fund was significantly riskier than Charles Schwab represented,” said Thomas D. Mauriello, a California investor rights attorney who filed today’s claim along with former SEC enforcement attorney Thomas Shine and investor rights attorney Christopher Vernon.
Mauriello noted that shares of other ultra short-term bond funds lost less than 2 percent of their value, on average, from June 30, 2007 to June 30, 2008. During that same time, Schwab YieldPlus Fund shares dropped 31.62 percent — a loss that was more than double the decline of the S&P 500 Index for the relevant period.
“The Schwab YieldPlus Fund is virtually alone among its peers in exposing conservative investors to these kinds of steep losses of principal,” Mauriello said.
Moreover, Schwab profited handsomely from its deceptive marketing of the Schwab YieldPlus Fund to conservative investors as the fund experienced tremendous growth, according to the claim.
From 2003 to 2007, Charles Schwab Investment Management, a wholly-owned subsidiary of parent Charles Schwab Corp., saw its annual management fees of the Schwab YieldPlus Fund grow by 600 percent, the claim states. Schwab earned management fees of $76 million during that time, as the fund grew to peak net assets of $13.5 billion on July 31, 2007.
By May 31, 2008, the fund’s net assets had plunged by more than 96 percent to $507 million.
This risky investment composition of the Schwab YieldPlus Fund by fund managers compromised the fund’s liquidity and forced it to sell off asset-backed and mortgage-backed securities at distressed prices as more and more investors sought redemptions beginning in August 2007, the claim asserts.
One of the retirees who filed a claim today, a 69-year-old widow from Rio Vista, California, thought her investment in the Schwab YieldPlus Fund was virtually the same as a money market fund investment based on the representations of her Schwab investment advisor, the claim states.
Also filing a claim today was a retired couple from Solvang, California who lost approximately $166,000 of their principal investment in the Schwab YieldPlus Fund.
Securities fraud litigators in the Shine-Vernon legal team have now filed claims on behalf of both corporate and individual Schwab YieldPlus Fund investor clients in California, New York, Texas, Florida, Missouri, Minnesota, Illinois and Hawaii, and they are currently investigating claims on behalf of investors in multiple other states. The team includes former SEC enforcement attorneys, former federal and state prosecutors, and investor rights attorneys from California, New York, Florida, Texas and Illinois.
Contact:
— Christopher T. Vernon, an investor rights attorney who represents investors throughout the United States (Florida, 239-649-5390, www.vernonhealy.com) — Thomas D. Mauriello, an investor rights attorney who represents investors throughout the United States (California, 888-612-1961, www.maurlaw.com);
— Thomas F. Shine, a former Securities and Exchange Commission (“SEC”) Division of Enforcement attorney (Florida, 800-838-8320, www.thomasfshinelaw.com);
Keywords: Schwab YieldPlus Fund, Yield Plus, SWYSX, SWYPX, Charles Schwab, investor losses, safety, securities attorney, arbitration, settlement.
