Court Rules That Schwab Yield-Plus Fund Failed to Secure Shareholder Consent

A federal court has held that Schwab’s mutual fund managers contradicted its policy of limiting money invested in a particular industry to 25 percent. This required shareholder consent under federal securities laws. The case is now set to go to trial.

In the lawsuit, the investors’ nationwide damages approximate over $80 million.

Schwab also has tried to persuade the SEC from suing Schwab. YieldPlus investors shareholders suffered millions of dollars in losses when the fund invested much of its assets in mortgage-backed securities that were not insured. When real estate crashed, so did the fund.

Investors argue that Schwab misled them by pitching the mutual fund as “marginally” riskier than CDs. The fund omitted that mortgage-related securities comprised more than 50% of the fund’s assets.

While the case is venued in the Northern District of California, In Re Charles Schwab Corp. Securities Litigation, 08-cv-01510, many Florida investors were induced by their brokers to invest in this fund.