Protecting Investors - Schwab YieldPlus Fund, Lehman Brothers Principal Protected Notes, Structured Products, REITs, Bonds

Shine Vernon team files new fraud claims today against Charles Schwab over YieldPlus Fund misconduct

Vernon Healy Attorneys at Law — Thu, 15 Oct 2009 13:44:09 -0700

Charles Schwab & Co. and its former high-profile fund manager engaged in deception and fraudulent conduct when they misrepresented the Schwab YieldPlus Fund as safe haven for investors while loading the fund with high concentrations of risky mortgage- and asset-backed securities that exposed fund investors to steep losses of their principal, according to claims filed today by the Shine Vernon legal team on behalf of investors with more than $400,000 in losses.

The Shine Vernon team, which is headed by former SEC enforcement attorney Thomas Shine and longtime investor rights’ attorney Chris Vernon and two other former SEC attorneys, has filed arbitration claims on behalf of individual investors with Schwab YieldPlus Fund (SWYPX, SWYSX, SCHW) losses totaling $1.7 million this month. The team has filed claims on behalf of Schwab YieldPlus investors with losses totaling almost $3 million since mid July.

Many Schwab YieldPlus investors represented by the Shine Vernon team are retirees and baby boomers who’ve suffered significant losses of principal. In the last month, the Shine Vernon team has filed claims on behalf of investors including a park ranger, ocean engineer, insurance broker, retired banking industry professional, consultant, real estate developer, boat broker, journalist, judge, and two real estate professionals.

Charles Schwab acknowledged today that it has received a Wells notice from the SEC, alerting the company that the SEC intends to seek legal action against Schwab related to the YieldPlus Fund and the Total Bond Market Fund.

Charles Schwab compared its Schwab YieldPlus Fund to the safety of 1 and 2-year certificates of deposit and described it as “portfolio cash” on its website, but actually the bond mutual fund managers loaded the fund with high concentrations of risky mortgage- and asset-backed securities that exposed fund investors to the danger of substantial losses of their principal, the claims assert.

“The breadth of misconduct we’ve uncovered as part of our investigation is profoundly disturbing,” Shine said.

According to arbitration claims filed today with the Financial Industry Regulatory Authority on behalf of individual investors:

-- Schwab’s senior management changed the Schwab YieldPlus Fund’s investment policy in September 2006 to allow for a higher concentration in riskier mortgage-backed securities and asset-backed securities, without obtaining shareholder approval or clearly disclosing this major shift to investors;

-- Schwab embarked on a self-dealing “damage control” marketing campaign to avert redemptions of Schwab YieldPlus by Charles Schwab retail clients, quietly selling 2.9 million Schwab YieldPlus Fund shares from other Schwab proprietary mutual funds during the period January 31, 2008 to April 1, 2008, while indicating in marketing materials, newsletters, talking points, and other investor communications that unwitting Schwab retail clients should hold their shares.

-- Schwab ignored the warnings of securities and banking regulators about the risky

nature of mortgage-backed securities and collateralized mortgage obligations, including warnings to refrain from deceptive advertising of such securities including comparisons to certificates of deposits;

-- Schwab’s management failed to adequately disclose that investors had withdrawn $2.8 billion from the YieldPlus Fund in August 2007. Full and explicit disclosure didn’t come until November 30, 2007 -- by which time the Fund’s net assets had dropped to $8 billion, down from $13.5 billion as of July 31, 2007;

-- In SEC filings and direct communications with shareholders and prospective investors, Schwab misrepresented the Schwab YieldPlus Fund as an ultra short-term bond fund. In reality, the fund was heavily weighted with floating and variable rate bonds with long-term maturities, which gave the fund a weighted average maturity equivalent to an intermediate term bond fund. During the second half of 2007 and in 2008, when the fund was declining in value, these misrepresentations created the false illusion that if investors held on to their positions for the next six months to a year, the bonds held in the fund’s portfolio would mature at face or par value and the fund and its shareholders would recover most of their unrealized losses.

-- Unlike its peers in the Morningstar ultra short bond fund category, the Schwab YieldPlus Fund failed to maintain adequate cash on hand to meet investor redemptions. Schwab YieldPlus Fund had only 6.5 percent of its portfolio in cash, while its peers in the ultra short-term bond fund category averaged 27 percent of their positions in cash. As more and more investors sought to sell their shares, Schwab had to sell illiquid securities held in the portfolio at distressed prices;

The Schwab YieldPlus Fund saw a catastrophic freefall, as net assets plunged from a high of $13.5 billion in July 2007 to just $679 million on May 31, 2008. Schwab reports that as of May 31, 2009, the YieldPlus Fund’s assets were at $161.72 million.

The Shine-Vernon legal team has interviewed more than 100 investors as part of its Schwab YieldPlus investigation and filed arbitration claims on behalf of investors in Florida, California, Texas, New York, Missouri, Minnesota, Illinois, Alabama and Hawaii.

“The Schwab YieldPlus Fund is a sad example of how the greed on Wall Street and the mortgage-backed securities crisis combined to devastate average investors,” Vernon said.

For information, contact:

— Christopher T. Vernon, an investor rights attorney who represents investors throughout the United States (Florida, 239-649-5390, www.vernonhealy.com, www.protectinginvestors.com)

Shine Vernon legal team and California co-counsel Thomas D. Mauriello file three new Schwab YieldPlus arbitration claims, seeking recovery of over a half million dollars in losses

Vernon Healy Attorneys at Law — Tue, 06 Oct 2009 07:57:33 -0700

The Shine Vernon legal team and California co-counsel Thomas D. Mauriello have recently filed three new arbitration claims on behalf of California investors who collectively lost more than $500,000 in the Schwab YieldPlus Fund (SWYPX, SWYSX, SCHW) and the Schwab California Tax Free YieldPlus Fund (SWYCX).

Schwab marketed its Schwab YieldPlus Fund and Schwab California Tax Free YieldPlus Fund to retirees and other conservative investors as safe ultra short-term bond funds and alternatives to cash.

However, the Funds' managers over-concentrated the Funds with risky mortgage- and asset-backed securities in the case of the YieldPlus Fund and, with auction rate securities in the case of the California Tax Free YieldPlus Fund. This exposed the Funds to huge undisclosed liquidity risk and other risks and ultimately caused investors steep losses of their principal, the new claims assert.

“With each new claim we investigate and file, we are expanding our understanding of the scope of Schwab's recklessness and misrepresentations with respect to these particular funds,” Mauriello said. “We are putting a great deal of effort into these investigations and the resulting claims to obtain recovery for the individual investor.”

The Shine-Vernon legal team, headed by former SEC enforcement attorney Thomas Shine and longtime investor rights' attorney Chris Vernon, has interviewed more than 100 investors as part of its Schwab YieldPlus investigation. The team consists of six law firms throughout the United States.

The team has filed arbitration claims on behalf of investors in Florida, California, Texas, New York, Missouri, Minnesota, Illinois and Hawaii. While the attorneys on the team have high-level, nationwide experience in securities arbitrations, the firms are small enough to offer personalized attention and care to each client throughout the arbitration process.

These latest claims were filed on behalf of baby boomers and retirees, including an engineer, a journalist, a judge, and two real estate professionals. Two of the claims will be heard in San Francisco while the third will be heard in San Diego. These claims come on the heels of $1 million in investor claims filed by the Shine Vernon legal team in July.

The new claims assert that the reckless actions of the fund managers of the Schwab YieldPlus Fund and Schwab California Tax Free YieldPlus Fund compromised the Funds' liquidity and exposed investors to substantial risk of losses, while Schwab was marketing these funds as a safe alternative to cash.

This set the stage for the catastrophic freefall of the Schwab YieldPlus Fund, as net assets plunged from a high of $13.5 billion in July 2007 to just $679 million on May 31, 2008. Schwab reports that as of May 31, 2009, the YieldPlus Fund's assets were at $161.72 million. The Schwab California Tax-Free YieldPlus Fund experienced a similar decline in total managed assets, decreasing from $1.201 billion as of July 31, 2007 to $156.68 million (down 86.96%) on August 31, 2008.

The claims include the following allegations:

— In SEC filings and direct communications with shareholders and prospective investors, Schwab misrepresented the Schwab YieldPlus Fund as an ultra short-term bond fund. In reality, the fund was heavily weighted with floating and variable rate bonds with long-term maturities, which gave the fund a weighted average maturity equivalent to an intermediate term bond fund. During the second half of 2007 and in 2008, when the fund was declining in value, these misrepresentations created the false illusion that if investors held on to their positions for the next six months to a year, the bonds held in the fund's portfolio would mature at face or par value and the fund and its shareholders would recover most of their unrealized losses.

— Unlike its peers in the Morningstar ultra short bond fund category, the Schwab YieldPlus Fund failed to maintain adequate cash on hand to meet investor redemptions. Schwab YieldPlus Fund had only 6.5 percent of its portfolio in cash, while its peers in the ultra short-term bond fund category averaged 27 percent of their positions in cash. As more and more investors sought to sell their shares, Schwab had to sell illiquid securities held in the portfolio at distressed prices;

— Schwab's senior management changed the Schwab YieldPlus Fund's investment policy in September 2006 to allow for a higher concentration in riskier mortgage-backed securities and asset-backed securities, without obtaining shareholder approval or clearly disclosing this major shift to investors;

— Schwab's management failed to adequately disclose that investors had withdrawn $2.8 billion from the YieldPlus Fund in August 2007. Full and explicit disclosure didn't come until November 30, 2007 — by which time the Fund's net assets had dropped to $8 billion, down from $13.5 billion as of July 31, 2007;

— Schwab ignored the warnings of securities and banking regulators about the risky nature of mortgage-backed securities and collateralized mortgage obligations, including warnings to refrain from deceptive advertising of such securities including comparisons to certificates of deposits;

— Schwab embarked on a self-dealing marketing campaign to avert redemptions of Schwab YieldPlus by Charles Schwab retail clients, quietly selling 2.9 million Schwab YieldPlus Fund shares from other Schwab proprietary mutual funds during the period January 31, 2008 to April 1, 2008, while indicating in marketing materials, newsletters, talking points, and other investor communications that unwitting Schwab retail clients should hold their shares.

For information, contact:

— Christopher T. Vernon, an investor rights attorney who represents investors throughout the United States (Florida, 239-649-5390, www.vernonhealy.com)

Recent Media Coverage of Vernon Healy

Vernon Healy Attorneys at Law — Fri, 17 Jul 2009 06:35:31 -0700

Recent coverage of Vernon Healy's cases

Coverage in Mutual Fund Wire

"Schwab's YieldPlus Fund lands back in court"

Coverage in Naples Daily News

"Naples attorney busy filing claims against financial firms"

Shine-Vernon legal team files $1 million in claims on behalf of Schwab YieldPlus investors today

Vernon Healy Attorneys at Law — Thu, 16 Jul 2009 07:14:39 -0700

The Shine-Vernon legal team filed claims today on behalf of three Florida investors with principal losses totaling more than $1 million asserting that Charles Schwab & Co. and its former high-profile fund manager committed fraud when they deceptively marketed the Schwab YieldPlus Fund as a safe cash alternative.

Schwab marketed its Schwab YieldPlus Fund (SWYPX, SWYSX) to investors as a safe, ultra short-term bond fund, but actually the bond mutual fund managers loaded the fund with high concentrations of risky mortgage- and asset-backed securities that exposed fund investors to the danger of substantial losses of their principal, the claims assert.

The Shine-Vernon legal team, headed by former SEC enforcement attorney Thomas Shine and longtime investor rights’ attorney Chris Vernon, has interviewed more than 100 investors as part of its Schwab YieldPlus investigation and filed arbitration claims on behalf of investors in Florida, California, Texas, New York, Missouri, Minnesota, Illinois and Hawaii.

The three claims filed today are on behalf of three Florida investors, two of whom are in their 70s, with the third in his early 60s and nearing retirement age.

Many Schwab YieldPlus investors are conservative investors and retirees who’ve suffered steep losses of principal even though Charles Schwab compared its Schwab YieldPlus Fund to the safety of 1 and 2-year certificates of deposit and described it as “portfolio cash” on its website.

The claims filed today assert that the Schwab YieldPlus Fund managers’ reckless actions and negligence set the stage for the catastrophic freefall of Schwab YieldPlus in which the bond mutual fund saw net assets plunge from a high of $13.5 billion on the eve of the subprime credit crisis in July 2007 to $507 million as of May 31, 2008. Schwab reports the YieldPlus Fund’s current assets as of May 31, 2009 at $161.72 million.

The claims filed today include the following allegations:

-- 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. As of July 31, 2007, the Schwab YieldPlus fund held an astonishing 56 percent of its assets in risky mortgage-backed securities and asset-backed obligations (38 percent of all assets held in collateralized mortgage obligations) at a time when it was holding itself out as a safe haven for conservative investors and retirees, the claims assert;

-- Schwab’s management opened the door to the fund’s high concentration of risky mortgage and asset-backed securities by unilaterally determining that the mortgage industry didn’t constitute a single industry for purposes of analyzing diversification of risks in the portfolio, the claims assert;

-- On the eve of the credit crisis in May 2007, the Schwab YieldPlus Fund had 6.5 percent of its holdings in cash, compared to its peers in the Ultrashort Bond Fund category who held, on average, 26.8 percent of their positions in cash. The meager cash holdings of the Schwab YieldPlus Fund set the stage for the fund’s meltdown when investors sought approximately $2.8 billion in redemptions during August 2007 in the wake of concerns following the collapse of two Bear Sterns hedge funds, the claims assert;

-- Schwab’s management on Nov. 2, 2007 filed with the SEC the Schwab YieldPlus Fund annual report for the period ending Aug. 31, 2007. The annual report disclosed the fund’s total net assets ($10.696 billion) but failed to disclose the approximately $2.8 billion in investor redemptions that took place in August 2007. The redemptions were also not disclosed in the revised prospectus for the YieldPlus Fund filed Nov. 14, 2007. By Nov. 30, 2007, the Schwab YieldPlus Fund’s total net assets had dropped further to $8.027 billion, a $5.464 billion or 40.5 percent decline from the fund’s total net assets of $13.5 billion on July 31, 2007, the claims assert;

-- Schwab ignored the warnings of securities and banking regulators about the risky nature of mortgage backed securities and collateralized mortgage obligations that date back to the early 1990s. Securities regulators, including FINRA (formerly known as NASD) warned member firms as early as 1992 to refrain from deceptive advertising of CMOs including comparisons to certificates of deposits. Banking regulators warned of the liquidity risks of CMOs, the claims assert; and

-- 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 retail clients. Behind the scenes, Schwab dumped 2.9 million YieldPlus shares from the portfolios of its other proprietary mutual funds from Jan. 31, 2008 to April 1, 2008 while unwitting Schwab clients simultaneously held on to their shares, the claims assert.

“By comparing YieldPlus to the average losses suffered by other ultra-short term bond funds as a whole, it becomes clear that it was Schwab’s reckless fund management and not the ‘market’ that caused the damages in these cases,” investor attorney Chris Vernon said.

“The tragedy is that these cases involve people who were attempting to avoid the risks of the ‘market’ and willingly gave up the potential reward that goes with higher risk. They suffered significant losses to their principal because the fund was dramatically riskier than Charles Schwab portrayed it,” Vernon said.

— Christopher T. Vernon, an investor rights attorney who represents investors throughout the United States (Florida, 239-649-5390, www.vernonhealy.com)