More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
And on it goes. A class action suit brought by plaintiffs’ attorneys against Charles Schwab & Co. over the investment giant’s YieldPlus Fund appears to be settled.
The suit stems from investments contained within the YieldPlus portfolio, which included mortgage-backed securities and other credit instruments that declined significantly during the worldwide economic crisis beginning in late 2007.
“Schwab met with the plaintiffs’ attorneys and reached an agreement,” said Schwab spokesperson Greg Gable. “We had a hearing Thursday and the judge said he will rule on the agreement sometime soon, which we believe might be early next week.”
The case has been marked by on-again, off-again agreements between the two parties. The most recent agreement was called off by Schwab on Nov. 8 when the company notified the court it was backing out.
Schwab said it notified counsel for the plaintiffs that it was backing out of the agreement because plaintiff lawyers claimed the settlement was not all-encompassing, and they still had legal right to sue the company on behalf of other investors.
According to Schwab, in the spring of 2010 it agreed to a settlement of $235 million to settle all claims in the YieldPlus class action proceedings, regardless of their merit. Schwab said it was fully prepared to contest the allegations at trial but “wanted to provide significant and speedy financial benefit to valued clients who purchased or held the fund during the period covered by the lawsuit and to put the matter behind us.” Plaintiffs' lawyers at the time praised the settlement as one in which clients would receive "real money" and "a high percentage of recovery."
The company argues that until the credit crisis, the YieldPlus Fund was consistently one of the best performing funds in its category for eight years and held a Morningstar 5-star rating from December 2004 through September 2007. Even in the face of the credit crisis, the company notes YieldPlus shareholders lost, on average, only 7.5% of their investment when dividends are counted.