National Securities Attorneys

We are seeking the recovery of client losses, attorney fees, interest, costs and punitive damages for the victims of Charles Schwab investment fraud.

It is not just individual investors who can recover for Schwab fraud in the YieldPlus Investor Fund.  Both corporations and charitable foundations can also file arbitration claims for the same claims as individual investors.

If you lost at least $10,000, you are eligible to participate in a FINRA arbitration claim with Stoltmann Law Offices.

The true material facts, or material facts omitted necessary to make the statements made not misleading and/or omitted material facts required to be stated therein, were:

  1. The Funds were and. are not well-diversified and were concentrated in a single risky industry or market segment – in reality, over 50% of the Funds assets are  now invested in the mortgage industry, and that percentage grew as Defendants abandoned the objectives of the Funds in pursuit of higher yields;
  2. A material portion of all the bonds were issued by the Fund’s top 10 broker dealers, who sold the funds shares;
  3. There exists no primary market for most of the bonds, and in fact, the only market was, for many, the issuers themselves;
  4. The duration of a vast majority of the bonds is greater that 2 years, with a majority of the bonds not having a publicly available duration;
  5. The Funds credit and market analysts did not have any real expertise in valuing the mortgage backed securities they purchased, or assessing the risk;
  6. The Funds relied blindly on the ratings by agencies who were paid by the Funds’ broker-dealers; and
  7. The net asset values (“NAVs”) of the Funds were highly speculative and inflated.
  8. The Funds “invests in a large, well-diversified portfolio of taxable bonds … .”
  9. “To minimize changes in share price or NAV, the fund seeks to maintain an average portfolio duration of one-year or less.”
  10. “The [Funds were being] actively managed by a seasoned team of taxable bond portfolio managers who are supported by a team of credit and market analysts. The team use a disciplined approach … .”

The November 17, 2007 Prospectus for the Schwab YieldPlus Investor Fund discloses the following:

  1. “The Schwab YieldPlus Fund is an ultra short-term bond fund, designed to offer high current income with minimal

changes in share price. The fund seeks to keep the average duration of its portfolio at one year or less.”

  1. “Strategy: To pursue its goal, the fund primarily invests in investment-grade bonds (high and certain medium quality, AAA to BBB– or the unrated equivalent as determined by the investment adviser). The fund may invest in bonds from diverse market sectors based on changing economic, market, industry and issuer conditions… To help maintain share price stability and preserve investor capital, the fund seeks to maintain an average portfolio duration of one year or less.”
  2. “The fund’s investment strategy is designed to offer higher yields than a money market fund while seeking minimal changes in share price.”
  3. “The fund may invest in derivatives including, without limitation, futures, options, and swaps (including credit default swaps) which relate to fixed income securities, interest rates, and other assets and related indices….The fund typically uses derivatives for risk management purposes and as a substitute for taking the position in an underlying asset.”

The Schwab YieldPlus Fund was down 18.5% during 2007, putting it at the bottom of its ultra-short bond-fund category. On average, such funds are down only 0.37% in 2007.  Schwab cannot claim the market caused the fund meltdown.  It was caused by the Schwab fund managers taking a concentrated speculative position in a short term fund that by law needed to be diversified.


Arbitration Process

What is Securities Arbitration For Charles SchwabYieldPlus Mutual Fund Losses?

Securities arbitration is the method of having a dispute between a brokerage firm (Charles Schwab) and its client resolved by impartial individuals who are knowledgeable in the securities areas in controversy. Those persons are called arbitrators. FINRA (formerly known as the NASD or National association of Securities Dealers) arbitration actions have long been used as an alternative to the courts because it is an inexpensive and prompt means of resolving complicated issues. Unlike court decisions, FINRA arbitration awards are final and binding, subject to review by a court only on a very limited basis.

Where Do Schwab Investor FINRA Arbitration Hearings Occur?

All arbitration against Charles Schwab are administered through FINRA all over the country.  FINRA employees independent arbitrators, usually lawyers or business people, who sit and hear the client’s case and makes a decision. The arbitrators will conduct a hearing. Each side (the Claimant and the Respondent) will have the chance to tell its version at the arbitration and there will be cross-examination. Most FINRA arbitration cases are handled in the largest city closest to the investors home. Each state has at least one hearing location. The arbitration hearing will occur in an office building or hotel and not a courthouse. It could last several days.

Do I have a Choice When It Comes To Arbitration Against Schwab?

No.  A binding arbitration clause in Schwab’s new account agreements means investors have no choice but to adjudicate their case through FINRA arbitration.  The only other option is class action litigation.  If an investor files a lawsuit in court, the case will be dismissed and referred to FINRA arbitration.

How Much Can Be Recovered in Arbitration Against Charles Schwab for Mutual Fund Losses?

The most basic remedy for damages against Schwab for its fraudulent mutual fund dealings are out-of-pocket losses. The out-of-pocket loss is generally the amount of money invested by the client in the funds minus the returns and the residual value of the investment. In addition to out-of-pocket losses, an investor in a FINRA arbitration may be awarded damages based on the profits he or she would have made had the wrongful act not occurred. These lost profits are recoverable in some FINRA cases but it is very fact specific to each case.  Investors may be awarded anything from no compensation all the way to losses, attorney fees and interest.  There are no guarantees or assurances in arbitration.

FINRA arbitrators in lawsuits against Schwab have the power to award punitive damages and may do so where the facts warrant them and they are satisfied that there is an adequate basis in law to do so. Punitive damages against advisers or firms may be any amount and they are to punish firms and to deter future misconduct. Punitive damages are relatively rare in FINRA NASD arbitration.

How Long Does the Arbitration Process Take?

Usually the process takes 12 months.  If over the age of 65, the process can take 6 months if granted fast racked status by FINRA.


Class Action Warning for Schwab Mutual Fund Victims…

A warning for Charles Schwab mutual funds victims…In class action cases, you are automatically included in the class action case unless you explicitly opt out of the suit.  Unfortunately, if you stay in the class action, you cannot also recover in the FINRA (formerly known as the NASD) arbitration process.  The class action option will likely result in a very disappointing result for investors.  The typical class action recovery is about 5 to 7 cents on the dollar for each dollar lost. It is imperative if you do not want to be sucked into the class action suit, you opt out.  At Stoltmann Law Offices, we can assist you with that process.

Mutual Fund Losses

Not Naming Schwab Brokers

We are not naming in the FINRA arbitration claims the Schwab advisors or the Schwab affiliated registered investment advisors who recommend the funds. Schwab’s success over the years has depended heavily on the success of their independent investment adviser firms. Schwab serves roughly 5,000 independent advisers within its “network.”

Most independent adviser firms are not affiliated with any brokerage firm, are not managed by a brokerage firm, and work independently from the brokerage firm, as adviser firms offer investment services to individuals or businesses. Some of the biggest purchasers of the Schwab YieldPlus Funds (SWYSX) were registered investment advisors who purchased the funds for their clients.

We believe the true, concentrated nature of the funds were hidden even from the Schwab advisers and brokers and the registered investment advisers affiliated with Schwab who recommend the funds. Therefore, the individual employees at Charles Schwab who recommended the Schwab YieldPlus Funds and the registered investment advisers who utilized the funds for their clients are not our target and are not being named as parties in the FINRA arbitration actions.

Stoltmann Law Offices usually works on a contingency fee arrangement of 33.3%.  What this means is that unless we win and recover losses for you, there are no expenses or fees. For our Charles Schwab YieldPlus Mutual Fund clients, we are pursuing their full losses, attorney fees, interests and costs.  Under most state securities acts, this is a mandatory remedy if liability is established.  Interest is measured from the date the funds were purchased through the date the funds are paid back.  Attorney fees include reasonable attorney fees, which under many state securities acts include a contingent rate.


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices. The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.