Protecting Investors - Schwab YieldPlus Fund, Auction Rate Securities, Lehman Brothers Principal Protected Notes

Schwab YieldPlus Fund: Where Are The Schwab Private Client and Schwab Managed Portfolio Claimants?

Vernon • Healy, in partnership with a team of lawyers, represents clients throughout the United States who invested in the Schwab YieldPlus Fund as a result of the advice they received from the Charles Schwab brokers assigned to their accounts.  However, Charles Schwab also offers two programs to investors who are interested in obtaining and paying for more comprehensive advice with respect to managing their investment portfolios.  Did those Charles Schwab customers receive the same advice about their Schwab YieldPlus investments?

The Schwab Private Client program assigns a Charles Schwab Financial Consultant to the client who works with a Portfolio Consultant to provide “customized guidance that reflects your unique situation and goals” and make “. . . fact-based recommendations . . .”  to the client, according to the Charles Schwab website (March 30, 2009).  This service is available for an annual asset-based fee starting at 0.75% for equities and 0.50% for fixed income investments.

Charles Schwab also offers a “Schwab Managed Portfolios” program to its clients.  Charles Schwab investment professionals design a diversified asset portfolio consisting of Schwab and/or non-Schwab mutual funds.  After the portfolio has been designed, the portfolio managers monitor the performance of the portfolio, replacing low-rated funds and engaging in asset class rebalancing as needed.  According to the Charles Schwab website, portfolio managers rely upon recommendations from the Schwab Center for Financial Research in designing and restructuring the client’s managed portfolio.  Charles Schwab clients presently pay fees that range from 0.25% to 0.50% of the non-cash assets in the portfolio.

The stunning collapse of the Schwab YieldPlus ultrashort bond fund from June 2007 Net Asset Value (“NAV”) - $9.67 per share on June 29, 2007 through April 30, 2009 (NAV - $4.65, down 51.9% - has been discussed at great length by financial journalists, attorneys and investors on internet posts.  When the fund started to experience huge redemptions in August 2007, it was forced to sell illiquid asset-backed and mortgage-backed securities at distressed prices.  These sales prompted more and more redemptions and distressed sales of illiquid securities throughout the remainder of 2007 and in 2008.  The total assets managed by the Schwab YieldPlus fund has plummeted from $13.491 billion on July 31, 2007 to $159 million as of March 31, 2009 (down 98.8%).

The steepest decline in the Schwab YieldPlus Fund’s NAV took place from January 31, 2008 through April 1, 2008.  This decrease coincides with the time period that the portfolio managers of the Schwab Retirement Income Fund and four of the Schwab Target Funds were selling a total of almost 3 million Schwab YieldPlus Fund shares from these funds’ respective portfolios.

On January 31, 2008, the Schwab YieldPlus Fund NAV closed at $8.93 per share (a decline of a little less than 10% from the Summer 2007 price).  On April 1, 2008, Charles Schwab posted the following notice on its website: “Several Schwab Funds have redeemed shares of the Schwab YieldPlus Fund.  On April 1, 2008, the Schwab Retirement Income Fund redeemed its last remaining shares, resulting in Schwab Funds no longer holding the Schwab YieldPlus Fund.”  The Schwab YieldPlus Fund closed at $6.80 per share on that day, down (-27.82%) from the fund’s June 29, 2007 NAV of $9.67 and down (-21.84%) from January 31, 2008, the date that the Schwab Retirement Income Fund and the four other Schwab Funds collectively held almost 3 million shares of the fund.

Members of our team have spoken to over 100 Schwab YieldPlus Fund investors who sustained significant losses in the fund.  Based upon those interviews, we know that Charles Schwab financial consultants and fixed income specialists were widely soliciting and recommending the fund to Charles Schwab customers.  We also know that Charles Schwab was aggressively marketing the fund to all of its customers on its website, in press releases and in its investor newsletters.  It is statistically improbable that not a single Charles Schwab Private Client or Schwab Managed Portfolio client would have contacted our team, unless these clients were advised to sell their shares in the fund in sufficient time to incur more modest losses relative to those who were not advised.

Schwab YieldPlus Fund investors’ losses accelerated very quickly in March of 2008, immediately prior to Charles Schwab’s April 1, 2008 announcement that the Schwab Retirement Income Fund and other Schwab proprietary funds had sold all of their Schwab YieldPlus Fund shares.  We have spoken to one investor whose Charles Schwab financial consultant told him on or about March 12, 2008 that substantial numbers of Charles Schwab Private Clients had owned the Schwab YieldPlus Fund and that Charles Schwab had already started advising these particular clients to sell the fund.

We are continuing to investigate the issue of when Charles Schwab advised its Schwab Private Advice clients to sell the Schwab YieldPlus Fund and when portfolio managers managing the Schwab Managed Portfolio clients’ accounts sold their clients out of the fund. As part of our continuing investigation, we would like to hear from Schwab Private Client or Schwab Managed Portfolio Program participants to discuss their experiences with the Schwab YieldPlus Fund.  In addition, is our belief that Schwab Private Clients and Schwab Managed Portfolio clients may have valid Schwab YieldPlus Fund claims worth pursuing.

If you are a Schwab Private Client or a Schwab Managed Portfolio Program participant, please contact Vernon • Healy.

California investor rights attorney Thomas Mauriello, of the Shine-Vernon legal team, files claims on behalf of Schwab YieldPlus Fund (SWYSX) investors with more than $200,000 in losses

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.

Shine-Vernon legal team: Fund Manager of Schwab YieldPlus Fund (SWYSX) and Schwab California Tax Free YieldPlus Fund (SWYCX) deceived retirees with assurances of safety

San Francisco, California — Charles Schwab & Co. and its former high-profile fund manager engaged in deception and dishonest conduct when they misrepresented  the Schwab YieldPlus Fund and the Schwab California Tax Free YieldPlus Fund as safe investments for investors seeking to protect their principal.  In fact, the funds’ high concentrations in risky and mostly illiquid securities exposed investors to the risk of substantial losses of principal, according to an arbitration claim filed today on behalf of a retired California couple.

The couple, a retired corporate executive and his wife, lost more than $300,000 in the funds (SWYSX and SWYCX), which were marketed by Charles Schwab as “cash alternatives” with safety akin to money market funds and certificates of deposit.  

 

“It is particularly disturbing that many of the investors in SWYSX and SWYCX are elderly investors and retirees,” 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.

 

“These investors were not interested in risk.  With respect to the Schwab California Tax-Free YieldPlus Fund, they expected a low-risk fund to generate modest tax free income.  Instead, they suffered significant losses to their principal because the fund was dramatically riskier than Charles Schwab represented it to be.”

The claim accuses Charles Schwab of failing to disclose or misrepresenting the risks associated with the concentration of the Schwab YieldPlus Fund in high-risk mortgage and asset-backed securities. This concentration compromised the liquidity of the fund 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.

 

 

Illiquidity coupled with investor redemptions plunged the Schwab YieldPlus Fund into a catastrophic free-fall: The fund saw net assets peak at $13.5 billion on July 31, 2007 and by May 31, 2008, the fund’s assets had plunged by more than 96 percent to $507 million.  

   

In the Schwab California Tax Free YieldPlus Fund, Schwab fund managers put increasing portions of the fund’s portfolio assets into auction rate securities and floating rate bonds. These investments compromised the liquidity of the Schwab California Tax Free YieldPlus Fund and contributed to the funds’ decline in the face of large investor redemptions, the claim asserts. The SWYCX fund’s total managed assets plummeted from $1.2 billion as of July 31, 2007 to $157 million just 13 months later.

 

 

The claim filed today effectively alleges that Schwab and former fund manager Kimon Daifotis engaged in misconduct when they embarked on a damage control campaign to avoid liquidations of the Schwab Yield Plus Fund by  Schwab clients while, behind the scenes, Schwab dumped 2.9 million Schwab YieldPlus Fund shares from the portfolios of other Schwab proprietary mutual funds.

 

 

These deceptive tactics effectively encouraged customers to hold on to their shares allowed Schwab’s broker-dealer arm and fund manager Daifotis to liquidate Schwab YieldPlus Fund shares from other Schwab mutual funds and obtain better selling prices ahead of their own retail customers, according to the claim.

 

 

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.protectinginvestors.com)

Schwab YieldPlus Fund, Yield Plus, SWYSX, SWYCX, Charles Schwab, floating rate bonds, auction rate securities, safety, securities attorney, class action, arbitration, settlement.

Shine-Vernon legal team forms alliance with former SEC regulators to investigate Schwab YieldPlus Fund, files claim on behalf of investor who lost more than $225,000 on YieldPlus (SWYSX, SWYPX)

Naples, Fla. — The Shine-Vernon legal team has formed a coast-to-coast alliance with other former Securities and Exchange Commission regulators, former prosecutors and investor advocates to investigate misconduct and seek recovery of losses for purchasers of the Schwab YieldPlus Fund.

 

Securities fraud litigators in the alliance have now filed claims on behalf of both corporate and individual investor clients in California, New York, Texas, Florida, Missouri, Minnesota, Illinois and Hawaii, and are currently investigating claims on behalf of investors in multiple other states.

 

The team filed another arbitration claim today on behalf of a California retiree who sustained more than $225,000 in Schwab YieldPlus Fund losses in his retirement savings account. Just prior to investing in the Schwab YieldPlus Fund, the retiree had the bulk of his retirement savings in cash or money market funds. Today’s claim follows earlier claims filed by the team on behalf of corporate and small business owners, a retired publisher, a retired accountant, a retired emergency room physician, a retired computer consultant and an 82-year-old widow — among others.

 

Charles Schwab & Co. marketed its Schwab YieldPlus Fund as a safe “cash alternative” to retirees and others around the country, but that safety was a charade: The Schwab YieldPlus Fund has lost more than 40 percent of its value in the past 18 months because of the reckless concentration of mortgage and asset-backed securities in the fund by former high-profile fund manager Kimon Daifotis.
 
Charles Schwab issued inaccurate statements or omitted information regarding material facts about the fund’s lack of diversification and deceived Schwab YieldPlus Fund investors by concentrating the fund in mortgage and asset-backed securities while it touted the fund’s safety on its web site and to financial advisors who recommended the fund, the claim states. Charles Schwab compared the safety of its Schwab YieldPlus Fund to that of one and two-year certificates of deposit.

 

“People from all walks of life invested in Schwab’s YieldPlus Fund, and investors who sought safety in YieldPlus are now paying dearly for Schwab’s betrayal,” securities attorney Christopher Vernon said. “We believe we’ve assembled an exceptional group of attorneys to bring claims on behalf of Schwab YieldPlus investors seeking recovery.”

 

For in-depth information about the Schwab YieldPlus Fund, see  http://www.protectinginvestors.comand http://www.thomasfshinelawblog.com

 

The alliance includes:

— Christopher Bebel, a former Securities and Exchange Commission Division of Enforcement attorney, former regulator with the Financial Industry Regulatory Association (aka NASD) and former federal prosecutor, (Texas, 281-348-2572, www.chrisbebel.com);
— Timothy Dennin, a former Securities and Exchange Commission Division of Enforcement attorney and former assistant district attorney, (New York, 212-826-1500, www.denninlaw.com);
— Thomas Mauriello, an investor rights attorney who represents investors throughout the United States, (California, 888-612-1961, www.maurlaw.com);
— Howard Prossnitz, an investor rights attorney who represents investors throughout the United States (Illinois, 312-960-1800, www.prossnitzlaw.com);
— Thomas Shine, a former Securities and Exchange Commission Division of Enforcement attorney (Florida, 321-724-4445, www.thomasfshinelaw.com);
— Christopher Vernon, an investor rights attorney who represents investors throughout the United States (Florida, 239-649-5390, www.vernonhealy.com); 

Shine-Vernon legal team files claim on behalf of corporate client in California over Schwab YieldPlus Fund losses (SWYSX, SWYPX)

Melbourne, Fla. — Charles Schwab & Co.’s misrepresentations about the safety of the Schwab YieldPlus Fund caused considerable harm to the business operations of a California-based company, according to a claim filed with FINRA Dispute Resolution today by the investor rights’ legal team headed by former Securities and Exchange Commission attorney Thomas F. Shine and investor rights’ attorneys Christopher T. Vernon and Thomas D. Mauriello.

The San Diego-based corporation, which develops service solutions for small businesses and consumers, had recently sold one of its business segments and its executives were looking for a safe place to invest the sales proceeds while they laid the groundwork for developing a new line of business for the company. 

Charles Schwab’s web page promoting its Schwab YieldPlus Fund invited investors to “discover a smart alternative for your long-term cash.” Charles Schwab touted the Schwab YieldPlus Fund as a safe and conservative “cash alternative” and compared its safety to that of one and two-year certificates of deposit, but investors have seen the bond mutual fund’s price fall by almost 40 percent during the past sixteen months.

The claim alleges that Charles Schwab issued inaccurate statements and omitted material facts about the fund’s lack of diversification and deceived Schwab YieldPlus Fund investors by concentrating the fund in mortgage and asset-backed securities while it recklessly touted the fund’s safety on its web site and to financial advisors who recommended the fund.

In addition, Charles Schwab executives and former high profile fund manager Kimon Daifotis committed misconduct when they embarked on a “damage control” campaign to avert liquidations of Schwab YieldPlus by Charles Schwab clients, the claim contends. Behind the scenes, Schwab dumped 2.9 million YieldPlus shares from the portfolios of its other mutual funds from Jan. 31, 2008 to April 1, 2008 while unwitting Schwab clients simultaneously held on to their shares. 

The Shine-Vernon legal team believes that this case is a prime example of the adverse economic consequences of the misconduct and deceptions engaged in by financial firms like Charles Schwab in recent years. It’s not only retirees who’ve been hurt, but also companies small and large who thought they were maintaining their operating capital in safe, conservative accounts.

“This is the type of financial institution behavior that can have a direct impact on Main Street’s ability to create and protect jobs and this misconduct should not go unpunished,” Vernon said.

In addition to the arbitration claim filed on behalf of the corporate client described herein, which will be heard in San Diego, the Shine-Vernon team has filed arbitration claims against Charles Schwab with the Financial Industry Regulatory Association (FINRA) on behalf of investors from California, New York, Texas, Florida, Missouri, Minnesota, Illinois and Hawaii and is currently investigating claims in New Mexico, Virginia, and several other states as part of its nationwide fraud investigation of the Schwab YieldPlus Fund.

Thomas Shine, a former enforcement attorney with the Securities and Exchange Commission in Washington, D.C., is in private practice in the Melbourne, Fla. area. Securities attorney Chris Vernon is a founding partner of the Naples, Fla. based law firm Vernon Healy, which represents investors throughout the United States. Thomas Mauriello is in private practice in Southern California and represents investors throughout California.

Release URL:

For information, contact:

Thomas F. Shine, attorney at law
http://www.thomasfshinelaw.com
http://www.thomasfshinelawblog.com
321-724-4445
1-800-838-8320
e-mail: tfshine@aol.com

or

Christopher T. Vernon, attorney at law
http://www.vernonhealy.com
http://www.protectinginvestors.com
239-649-5390
1-877-649-5394
e-mail: cvernon@vernonhealy.com

or

Thomas D. Mauriello, attorney at law
http://www.maurlaw.com
949-542-3555
1-888-612-1961
e-mail: tomm@maurlaw.com

Shine-Vernon legal team adds Minnesota and Missouri to list of states in which it has filed investor claims to recover Schwab YieldPlus Fund losses (SWYSX, SWYPX)

The investor rights’ legal team headed by former Securities and Exchange Commission attorney Thomas F. Shine and investor rights’ attorney Christopher T. Vernon filed claims on behalf of Schwab YieldPlus Fund investors in Minnesota and Missouri today.

The Shine-Vernon team has now filed arbitration claims on behalf of investors from California, New York, Texas, Florida, Missouri, Minnesota, and Hawaii as part of its nationwide fraud investigation of Charles Schwab’s misrepresentations to investors about its Schwab YieldPlus Fund.

Charles Schwab promoted its Schwab YieldPlus Fund as a safe and conservative “cash alternative” and compared its safety to that of one and two-year certificates of deposit, but investors have seen the bond mutual fund’s price fall by almost 40 percent during the past sixteen months. More and more investors are seeking to file claims with the Financial Industry Regulatory Association (FINRA) in their quest for legal recourse.

Charles Schwab deceived Schwab YieldPlus investors by concentrating the fund in mortgage and asset-backed securities while it recklessly touted the fund’s safety on its web site and to financial advisors who recommended the fund to investors. According to the claims filed today, Schwab issued inaccurate statements or omitted information regarding material facts about the fund’s lack of diversification.  

In addition, Charles Schwab executives and former high profile fund manager Kimon Daifotis embarked on a “damage control” campaign to avert liquidations of Schwab YieldPlus by Charles Schwab clients, the claims contend. Behind the scenes, Schwab quietly dumped 2.9 million YieldPlus shares from the portfolios of its other mutual funds during that time — from Jan. 31, 2008 to April 1, 2008 — while clients held their shares.

The claims filed today are on behalf of investors with close to $300,000 in losses. They include one claim filed on behalf of a retired publisher of a faith-based journal and another on behalf of a business owner. Both investors were seeking safety for the funds that they invested in the Schwab YieldPlus Fund.

The Shine-Vernon team was the first legal team to name Daifotis in claims filed on behalf of investors. Schwab disclosed in June that it had replaced Daifotis as the fund’s lead portfolio manager and Daifotis has been terminated by Charles Schwab, the brokerage firm. 

Investors have been encouraged by a recent case in which a FINRA arbitration panel awarded a Schwab YieldPlus Fund investor more than $500,000.

Although the economic outlook of many financial industry firms has been damaged in the ongoing credit crisis and recession (in no small measure because of the imprudent risks these firms took at investors’ expense), the Shine-Vernon team believes that Charles Schwab is financially strong enough to pay all damages awarded against it.

Investors who lost relatively small amounts of their principal may be able to get relief from a class action lawsuit now pending against Charles Schwab, to the extent they cannot resolve their claims through Schwab’s Client Advocacy Team.  However, investors who have lost significant amounts of principal as a result of investing in YieldPlus, should pursue securities arbitration, the Shine-Vernon legal team believes.    

Shine and Vernon legal team files claims to recover Schwab YieldPlus Fund losses (SWYSX, SWYPX) on behalf of investors from California, Texas and New York in October

As part of its investigation on behalf of Schwab YieldPlus Fund investors, the Thomas F. Shine –Christopher T. Vernon legal team has discovered that former high-profile Schwab fund manager, Kimon Daifotis, has been replaced as the fund’s lead portfolio manager and has been terminated by Charles Schwab, the brokerage firm.

Shine and Vernon were the first attorneys to file an investor claim naming Daifotis as a respondent. One day after filing that claim in June, Charles Schwab announced that it had replaced Daifotis as the YieldPlus Fund manager. 

The revelation about Daifotis’ departure and his termination by brokerage firm Charles Schwab is part of an investor rights claim filed today by the Shine-Vernon legal team on behalf of a retired U.S. Air Force officer and nurse anesthetist from Texas.

The investor rights’ legal team headed by former Securities and Exchange Commission attorney Shine and investor rights’ attorney Vernon has filed claims on behalf of Schwab YieldPlus investors in California, New York & Texas during the month of October. The claims follow earlier claims filed in Florida and Hawaii. The team is preparing to file claims on behalf of investors in New Mexico, Missouri, Minnesota, and Illinois and is interviewing clients from other states as well.

Charles Schwab marketed its YieldPlus Fund as a safe and conservative “cash alternative” and compared its safety to that of one and two-year certificates of deposit, but investors have seen the bond mutual fund’s price fall by almost 40 percent during the past sixteen months. More and more investors are seeking to file claims with the Financial Industry Regulatory Association seeking legal recourse. The claims, including one filed today on behalf of the Texas investor, assert that Charles Schwab deceived YieldPlus investors with the reckless mortgage and asset-backed security strategy orchestrated in the Schwab YieldPlus Fund. The claim contends that Charles Schwab committed gross misconduct when it embarked on a “damage control” campaign to avoid liquidations of YieldPlus by its clients. Behind the scenes, Schwab quietly dumped 2.9 million YieldPlus shares from the portfolios of its other mutual funds during that time — from Jan. 31, 2008 to April 1, 2008.

Investors represented by the Shine-Vernon legal team also claim that Charles Schwab and Daifotis misrepresented the safety of YieldPlus and failed to disclose material facts to investors about the fund. The bond mutual fund’s price has decreased by almost 40 percent during the past sixteen months.  This price decrease has resulted in the virtual liquidation of the Schwab YieldPlus Fund (SWYSX, SWYPX) with the fund’s total net assets under management declining by more than $13 billion or — 96 percent — over the past year.

Investors have been encouraged by a recent case in which a FINRA arbitration panel awarded a Schwab YieldPlus Fund investor more than $500,000.

Independent investment advisors who use Charles Schwab as a platform have referred clients to the Shine-Vernon legal team, and some are even considering their own recourse in the face of damage to their business reputations and loss of clientele due to misrepresentations surrounding the safety of the Schwab YieldPlus Fund.     

Shine, a former enforcement attorney with the Securities and Exchange Commission in Washington, D.C., is in private practice in the Melbourne, Fla.area. Securities attorney Chris Vernon is a founding partner of the Naples, Fla. based law firm Vernon Healy, which represents investors throughout the United States.

For information, contact:

Thomas F. Shine, attorney at law

http://www.thomasfshinelaw.com

http://www.thomasfshinelawblog.com

321-724-4445

1-800-838-8320

e-mail: tfshine@aol.com

or

Christopher T. Vernon, attorney at law

http://www.vernonhealy.com

http://www.protectinginvestors.com

239-649-5390

1-877-649-5394

e-mail: cvernon@vernonhealy.com

Conservative investors betrayed by Wall Street excesses

These are chaotic times on Wall Street. With each passing day it’s becoming more and more evident that conservative “Main Street” investors — both businesses and individuals — have been profoundly damaged by the deceptive and speculative excesses that have plunged Wall Street’s major brokerages into a wide and deep crisis.

 

The rub is so raw because many of the investment products that have been contaminated by the subprime mess and ensuing credit crisis were marketed and sold to investors as ultra-conservative and safe “cash equivalents.”

 

This is a complete betrayal.

 

This betrayal is more egregious than what we saw with the Wall Street analyst cases and the bursting of the inflated tech bubble earlier this decade. We knew that tech stocks, the new economy growth stocks of the day, represented the fast lane.

 

The people hurt in the crisis today are people who were led to believe they were in the slow — and safe — lane.  As a result, this crisis is really hurting people who didn’t intend to put their money at risk.

 

These are retirees and folks saving for retirement who carefully guarded their nest eggs. These are small business owners and corporations that carefully guarded their operating funds.  These are funds of charities and churches earmarked for future use to help those in need and the less fortunate among us. Regardless of any perspective or bias, virtually all would agree that these are people who didn’t deserve to lose their principal or have their liquid funds frozen.

 

In the last year, thousands of investors have lost more than $1 billion in Schwab’s YieldPlus Fund, which Schwab billed as a cash equivalent and likened its safety to that of one and two-year certificates of deposit.  Equally disturbing is the almost surreal debacle that’s played out in the $330 billion auction rate securities market that seized up in February and has left tens of thousands of investors unable to readily access their money.   These are just examples of some of the “safe” products that have performed far differently than advertised.

 

State securities regulators, most notably New York Attorney General Andrew Cuomo, have stepped in on behalf of investors to force the Wall Street firms involved to buy back $70 billion worth of auction rate securities from investors. But with the market at $330 billion before it froze, a substantial hole in the economy remains. 

 

Recently, federal regulators stepped in to save Fannie Mae and Freddie Mac,  and more recently AIG, but these actions have not prevented investors in those behemoths from being devastated in ways similar those who invested in the now bankrupt Lehman Brothers. 

 

Certainly there will be more calls for reforms.  Hopefully, lawmakers will recognize that the failure exposed by the current crisis is not that there are too few regulations or too few regulatory bodies.  With the exception of areas that operate outside the current regulatory system — such as credit default swaps which may need to be brought within the regulatory system as insurance or futures products — lack of regulation and lack of regulatory agencies are not the problem.  Rather what we’re seeing is widespread amoral behavior by Wall Street combined with a failure by regulators to regulate effectively — especially on the federal level.  This appears to be due to both the under-funding of existing regulatory agencies and the apparently cozy relationship between Wall Street and some regulatory bodies, specifically the Securities and Exchange Commission and the industry’s self-policing organization, the Financial Industry Regulatory Association or FINRA.

 

Much is at stake for the financial future of Americans in the coming weeks and months.  As we see the most recent misdeeds of Wall Street play out in the press and the political arena, investors need to understand that state regulators have been the most effective in protecting investors’ rights and federal regulators the least effective.  Adding another regulatory body on the federal level or transferring additional regulatory powers from the states to the federal government is unlikely to improve the situation. 

 

Additionally, while the current mess is being cleaned up through litigation, arbitration, and possible reforms, investors need to be wary of Wall Street’s claims that firms’ amoral behavior is an anomaly.  Combined with Wall Street firms’ actions of the past — such as the limited partnership mess of the early 1990s and the analyst debacle early this decade — recent events appear to be part of a familiar pattern.            

Vernon and Shine legal team: Florida retirees file arbitration claim to recover Schwab YieldPlus Fund losses (SWYSX, SWYPX)

A group of Florida retirees — whose losses in the Schwab YieldPlus Fund top $300,000 — have joined together to file arbitration claims today against Charles Schwab & Co. and former fund manager Kimon Daifotis. 

Schwab marketed its YieldPlus Fund as a safe and conservative “cash alternative” and compared its safety to that of one and two-year certificates of deposit on the Schwab web site.

But several Florida retirees who trusted Schwab with their nest eggs are now filing a claim with FINRA, the Financial Industry Regulatory Authority, asserting that Schwab deceived them with the reckless mortgage and asset-backed security strategy orchestrated in Schwab’s YieldPlus Fund.

The bond mutual fund’s price has decreased by more than 30 percent in the last year.  This price decrease has resulted in the virtual liquidation of the Schwab YieldPlus Fund (SWYSX, SWYPX) with the fund’s total net assets under management declining by more than $13 billion or — 96 percent — over the past year.  

The three Florida families who joined together to file today’s small group claim include:  an 82-year-old widow from Vero Beach; a retired computer consultant and artist from Longwood; and a retired accountant and homemaker from Port St. Lucie. All were longtime clients of Charles Schwab & Co.

The claim, filed by former Securities and Exchange Commission attorney Thomas F. Shine and investor rights attorney Chris Vernon, contends that Schwab committed gross misconduct when it embarked on a “damage control” campaign to avoid liquidations of YieldPlus by its clients. Behind the scenes, Schwab quietly dumped 2.9 million YieldPlus shares from the portfolios of its other mutual funds during that time — from Jan. 31, 2008 to April 1, 2008. The investors also claim Schwab and Daifotis misrepresented the safety of YieldPlus and failed to disclose material facts to investors about the fund.

Shine and Vernon were the first attorneys to file an investor claim naming Daifotis as a respondent. One day after filing that claim, Schwab announced that it had replaced Daifotis as YieldPlus Fund manager. 

Schwab is contacting some investors with settlement offers, but investors with larger losses are filing arbitration claims in the face of Schwab’s offers to pay pennies on the dollar (if anything) and refusal to acknowledge any wrongdoing or remorse for its actions.

In addition to representing Florida investors, Shine and Vernon are pursuing claims against Schwab on behalf of investors from California, Hawaii, Texas, New York and the Midwest.  

Shine, a former enforcement attorney with the Securities and Exchange Commission in Washington, D.C., is in private practice in the Melbourne, Fla. area. Chris Vernon is a founding partner of the Naples, Fla. based law firm Vernon Healy, which represents investors throughout the United States.

For information, contact:

Christopher T. Vernon, attorney at law
http://www.vernonhealy.com
http://www.protectinginvestors.com
239-649-5390
1-877-649-5394
e-mail: cvernon@vernonhealy.com

or

Thomas F. Shine, attorney at law
http://www.thomasfshinelaw.com
http://www.thomasfshinelawblog.com
321-724-4445
1-800-838-8320
e-mail: tfshine@aol.com

Charles Schwab Reporting YieldPlus Complaint Letters From Clients as Complaints Against Financial Consultants

Charles Schwab financial consultants are starting to get dinged on their CRDs, the regulatory report card for stockbrokers, over the Schwab YieldPlus Fund fiasco. These dings can come in cases when the financial consultants relied on defective information from their employer, Charles Schwab, regarding Schwab’s YieldPlus fund.  

Charles Schwab clients, who appropriately feel betrayed by the charade of safety that Charles Schwab used to market its YieldPlus Fund, have in some cases sent letters to Charles Schwab complaining about their financial consultants who recommended the fund as a safe alternative to cash. These complaint letters are typically entered on a broker’s CRD report that’s accessible to the public via the web site tool sponsored by FINRA, the Financial Industry Regulatory Authority.

Financial consultants (as well as Charles Schwab) clearly have “Know Your Security” suitability duties to know the essential facts about the products that they are recommending to their clients and to disclose the risks associated with those products. However, Charles Schwab financial consultants may feel that the risks pertaining to the Schwab YieldPlus Fund were not adequately disclosed in the fund’s prospectus and other SEC filings.  Charles Schwab financial consultants may also feel that they were further misled by Schwab YieldPlus Fund marketing materials that effectively described the fund as an alternative to cash.

Moreover, Charles Schwab conducted a “damage control” campaign designed to provide Charles Schwab financial consultants with information that would deter them from recommending to clients that they sell the fund as the price declined. This damage control campaign occurred so that Charles Schwab could quietly dump several million shares from other Charles Schwab proprietary funds ahead of Charles Schwab’s retail clients, according to claims we’ve filed so far or are preparing to file on behalf of investors from Florida, Hawaii, Texas, California, New York, and other states.

Some Charles Schwab financial consultants (and former consultants) may ultimately be supportive of clients who pursue YieldPlus claims against Schwab and agree that Charles Schwab misled investors.  Merely sending a complaint letter to Charles Schwab, as opposed to filing an arbitration claim or lawsuit against Charles Schwab, does little to assist the investor in recovering losses or damages from Charles Schwab. Similarly, the complaint letter does little harm to Charles Schwab but opens the door for Charles Schwab to file regulatory reports that disclose that a customer has complained about one of its brokers in connection with the sale of YieldPlus.