Colling, Gilbert, Wright & Carter Securites Fraud
Monday, May 19, 2008
Schwab Seeks to Limit Liability
The recent revelations that a number of funds marketed as relatively safe alternatives to money market contained collateralized debt and mortgage obligations as well as other "reset" type products, has left the sponsoring firms scrambling to do damage control and reduce potential liability. Among them is "semi-discounter" Charles Schwab who, through it's Client Advocacy desk, has been proactively contacting clients offering relatively small "good will gestures" to their clients whom experienced substantial losses in the company's YieldPlus short-term bond fund.
The following is an excerpt from the Friday, May 2, 2008 Wall Street Journal Article: "Schwab Seeks to Settle on Losing Fund"
Charles Schwab Corp. is offering settlements to investors in its Schwab YieldPlus Fund, a supposedly conservative fund that is down 26% this year. The offers represent pennies on the dollar for losses suffered by some investors, according to plaintiffs attorneys, who seek a class action against Schwab. Schwab declined to comment, citing pending litigation.
YieldPlus is an ultra-short bond fund that offered high yields, enticing investors and helping it grow rapidly. At its peak last year, it had more than $13 billion in assets. YieldPlus bet heavily on mortgage-related securities, and when those securities shrivelled from the subprime-mortgage crisis, so did the fund. Investors have been pulling out money; assets are down to $1.5 billion.
Fund companies typically have repaid investors who had losses in money-market funds. YieldPlus was not a money-market fund, but it was advertised as a vehicle for conservative investors looking for a slightly higher yield while preserving their capital.
In 2002, Heartland Advisors Inc. paid $14 million to settle a class action over two municipal-bond funds in which investors lost $60 million. In the 1990s, Paine Webber Group settled a class action over a roughly $2 billion fund that blew up on derivatives positions, giving more than $30 million in compensation.
In the case of YieldPlus, several suits seeking class-action status have been filed against San Francisco-based Schwab in U.S. district courts in New York, Massachusetts and California. Other law firms say they are investigating the fund.
Reports of Schwab's payout offers range from one cent to 12 cents or more for each dollar lost. Clients who take settlements generally are required to sign agreements that prevent them from joining outside litigation. Plaintiffs attorneys say Schwab may be offering settlements to avert a class action. Schwab, like most brokerages, requires investors to agree to binding arbitration in the event of many disputes. Plaintiffs attorneys say that doesn't apply to cases where the brokerage didn't adequately disclose risks. James Harp, an Irvine, Calif.-based investor acting on behalf of his wife, said a Schwab staffer told him he would be "making a 'grave' mistake" by trying to put "a timetable on a resolution if we can handle this claim without involving lawyers."
The following is an excerpt from the Friday, May 2, 2008 Wall Street Journal Article: "Schwab Seeks to Settle on Losing Fund"
Charles Schwab Corp. is offering settlements to investors in its Schwab YieldPlus Fund, a supposedly conservative fund that is down 26% this year. The offers represent pennies on the dollar for losses suffered by some investors, according to plaintiffs attorneys, who seek a class action against Schwab. Schwab declined to comment, citing pending litigation.
YieldPlus is an ultra-short bond fund that offered high yields, enticing investors and helping it grow rapidly. At its peak last year, it had more than $13 billion in assets. YieldPlus bet heavily on mortgage-related securities, and when those securities shrivelled from the subprime-mortgage crisis, so did the fund. Investors have been pulling out money; assets are down to $1.5 billion.
Fund companies typically have repaid investors who had losses in money-market funds. YieldPlus was not a money-market fund, but it was advertised as a vehicle for conservative investors looking for a slightly higher yield while preserving their capital.
In 2002, Heartland Advisors Inc. paid $14 million to settle a class action over two municipal-bond funds in which investors lost $60 million. In the 1990s, Paine Webber Group settled a class action over a roughly $2 billion fund that blew up on derivatives positions, giving more than $30 million in compensation.
In the case of YieldPlus, several suits seeking class-action status have been filed against San Francisco-based Schwab in U.S. district courts in New York, Massachusetts and California. Other law firms say they are investigating the fund.
Reports of Schwab's payout offers range from one cent to 12 cents or more for each dollar lost. Clients who take settlements generally are required to sign agreements that prevent them from joining outside litigation. Plaintiffs attorneys say Schwab may be offering settlements to avert a class action. Schwab, like most brokerages, requires investors to agree to binding arbitration in the event of many disputes. Plaintiffs attorneys say that doesn't apply to cases where the brokerage didn't adequately disclose risks. James Harp, an Irvine, Calif.-based investor acting on behalf of his wife, said a Schwab staffer told him he would be "making a 'grave' mistake" by trying to put "a timetable on a resolution if we can handle this claim without involving lawyers."
Apparently Schwab is attempting to wipe out as much potential liability as possible as cheaply as possible. We encourage investors who have been contacted by Schwab to contact our office to discuss their options for pursuing a greater recovery then what is being offered by Schwab. Call toll free (866) 352-3476.
posted by
William B. Young Jr. Esq.
at
9:33 AM
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