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Portfolio > Asset Managers

Investors Win Ruling in Schwab YieldPlus Case

By Michael S. Fischer

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A federal court judge in San Francisco has ruled that Charles Schwab Corp violated federal law by putting about half the assets of its YieldPlus mutual fund into uninsured mortgage-backed securities without approval of the fund’s shareholders, according to a Reuters report on March 31.

Investors are seeking to recover $970 million of damages that resulted from the fund’s exposure to the collapsing housing and credit markets. Following the ruling, a lawyer representing three classes of investors told Reuters, “We are going to have a damages trial, and we think damages will be easily proven.”

YieldPlus is a so-called ultra-short mutual fund, which many providers market as an alternative to cash, but with no guarantee against loss of principal, according to Reuters. The fund returned between 2.4% and 6.1% every year from 2000 to 2006, but then lost 1% in 2007, 35.4% in 2008 and 10.5% in 2009, Reuters reported, citing Morningstar data. YieldPlus’s assets have dwindled to $181 million from a 2007 peak of more than $13 billion, in part because of redemptions.

Michael S. Fischer ([email protected]) is a New York-based financial writer and editor and a frequent contributor to Wealth Manager.

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