The threatened SEC enforcement action against The Charles Schwab Corp. relating to sales of its YieldPlus Fund increases the likelihood that Schwab will need to settle a class action and FINRA arbitrations involving the YieldPlus Fund, according to industry analysts, as reported by Bruce Kelly on October 18 in InvestmentNews. On October 14, Schwab disclosed that it had received a Wells notice from the staff of the U.S. Securities and Exchange Commission that the staff intends to recommend the filing of a civil enforcement action against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the funds for possible violations of the securities laws with respect to the Schwab YieldPlus Fund and the Schwab Total Bond Market Fund.
According to the article, Matt Snowling, an industry analyst with FBR Capital Markets, issued a report stating: “Schwab will be given the opportunity to defend itself against enforcement charges before the SEC takes any action, but in our view, this announcement, coupled with the ongoing [FINRA] arbitration[s] related to the funds, heightens the probability that Schwab will likely need to settle its class action suit related to YieldPlus out of court.” ‘ “Regardless of the outcome of the SEC investigation, this news is likely to highlight the risks and lack of earnings momentum for Schwab heading into 2010,” Snowling added.
Recently, a California Federal court tentatively certified a class action brought by YieldPlus investors against Schwab. YieldPlus investors who are class members have until December 28, 2009 to request exclusion from the class if they wish to maintain individual arbitration claims against Schwab (even if those claims are already filed).
In addition to the class action, Schwab is facing many individual arbitration claims across the country. According to the article, Financial Industry Regulatory Authority (“FINRA”) says Schwab has lost 70% of the YieldPlus arbitration claims filed against it.
If Schwab views the Wells notice an opportunity to defend itself, YieldPlus investors and their attorneys view it as an even greater opportunity to discover the documents viewed by the SEC Staff that caused them to conclude that Schwab had violated the securities laws. Schwab, for obvious reasons, wants those documents to remain hidden.
A Schwab spokesperson refused to comment about the Wells notice.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors with investment problems. Page Perry is co-counsel in arbitration claims across the country relating to the YieldPlus Fund. For further information, please contact us.