A class action law suit has been filed on behalf of those who bought Schwab YieldPlus Investor Funds Investor Shares and Schwab YieldPlus Funds Select Shares against the Schwab Corporation, the underwriter and investment adviser connected to the funds, and several Schwab officers and directors. However, many smart investors are instead seeking greater recovery by filing their own cases.
The investor plaintiffs in the class action claim the defendants misled them when they provided false statements about the funds’ lack of diversification and the degree to which the funds were exposed to subprime-backed securities. The plaintiffs say that the funds-marketed as a safe alternative to money market funds-actually had more than half of its fund assets invested in the mortgage industry.
The funds are down significantly. Through March 26, The Schwab YieldPlus Investor Fund (SWYPX) has fallen 17% , while the Schwab California Tax-Free YieldPlus Fund (SWYCX) has dropped by 9% . Investors say that the defendants were in violation of Section 11 of the Securities Act of 1933 when they misrepresented the funds to investors, marketing them with the goal of looking for high current income coupled with minimum share price changes.
Anxious investors left the Schwab YieldPlus Investor Fund when it dropped by about 3.6% in 2007. Fund assets reportedly fell from $13.5 billion in June 2007 to $2.5 billion last month. Fund managers must now sell bonds at depressed rates.
The Schwab California Tax-Free YieldPlus Fund (SWYCX)’s assets are down from $1.1 billion in mid-2007 to under $600 million this March. The source of the significant drop is attributed to its investments in variable-rate bonds connected to the London Interbank Offering Rate (LIBOR) index, which has fallen as liquidity has disappeared.
While the class action suit may result in some recovery for victims, many investors are aware that such cases often result in recovery of only “pennies on the dollar” for investors. Thus, those with any significant loss may obtain a far better result by filing their own claims in securities arbitration.
The investor fraud law firm of Shepherd Smith and Edwards represents investor clients that have lost money because those in the securities industry have engaged in misrepresentation, omissions, unsuitability, overconcentration, churning, failure to supervise, failure to execute trades, breach of promise/contract, breach of fiduciary duty, negligence, margin account abuse, registration violations, or unauthorized trading. Contact Shepherd Smith and Edwards for your free consultation to discuss your case.
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