Reserve Yield Plus Fund and TD Ameritrade Class Action Lawsuit Filed
December 1st, 2008 • Filed Under: News • 10 Comments
A class action lawsuit has been filed against TD Ameritrade and the Reserve Short-Term Investment Trust on behalf of investors who held shares of the Reserve Yield Plus Fund between July 27, 2007, and September 16, 2008.
The lawsuit was filed in the United States District Court for the Southern District of New York, claiming that investors suffered substantial financial losses as a result of false and misleading statements about the nature of risk that would be associated with the fund.
Reserve Yield Plus Fund was advertised as an investment designed to seek a high level of income while preserving capital and liquidity, with a stable $1.00 share price. Advertising materials also characterized the investment as an “enhanced cash fund” that would provide “soundness of sleep.”
Reserve Short-Term Investment Trust is a diversified management investment company, which offered the Reserve Yield Plus Fund. The lawsuit also names TD Amertrade, a brokerage firm which the complaint indicates was consistently representing to investors that the Fund was just like a money market fund.
The Reserve Yield Plus class action suit alleges that the prospectus left out material facts and that risky investments made by the fund managers did not comply with the stated objectives of preserving capital.
The problems with the Fund were caused by heavy investment in debt securities issued by Lehman Brothers. Following the September 15, 2008, Lehman Brothers bankruptcy, the net asset value of the Reserve Yield Plus fund fell below $1.00 per share.
Reserve Yield Plus purchased a large amount of Lehman commercial paper in April 2008, despite the widespread belief that Lehman Brothers would be the next Wall Street failure after Bear Sterns collapsed in March 2008.
Comment by EUGENE on 2 December 2008:
i WAS ADVISED HOW GREAT IT WOULD BE TO INVEST 50% OF MY CASH POSITION INTO THE MONEY MARKET RESERVE FUND THAT HAS A GREAT YIELD. HEAR I AM OVER TWO MONTHS LATER NOT BEING ABLE TO SELL FOR THE $1.00 PER SHARE PURCHASED AT. NOW IF I BUY STOCK ON MARGIN MUST PAY INTEREST WHILE I HAVE CASH I CAN NOT USE.
TDAMERITRADE SAID WHEN I JOINED THEM THAT I AM PROTECTED FOR OVER 1 MILLION DOLLARS IN THEIR INSURANCE PROGRAM YET THEY STILL WILL NOT RELEASE THE FUNDS TO ME. i HAVE BEEN TRADING ON LINE WITH THEM FOR OVER FIVE YEARS.
Comment by Lou on 2 December 2008:
I am a former employee of TD Ameritrade as an Investment Consultant. I have been trained to recommend this investment to clients who were looking to transfer their accounts out of TD Ameritrade due to very low money market rates. I was told to tell clients this is a money market fund which is very safe and will never go down in value. I also have a signifcant portion of my own retirement assets in this fund since I was told it was safe.
Comment by phyllis on 2 December 2008:
we are also clients that were misled and defrauded by representatives of TD Ameritrade who lied to us when we put money into this fund. They told us itwas a money market, was safe and secure and that there would be no problem getting our money as it was insured. They also told us on September 19th, - three days after the account was frozen - that everything was OK. There are many other events that have occurred.
Comment by Alan on 12 December 2008:
The end of August I was contacted by TD Ameritrade saying they noticed all my assets in the account were sitting in cash and asked if I would like to buy a mutual fund. I said no, I moved it out of mutual funds in January as the market was going down and didn’t want to buy any stocks or funds until I felt the bottom had been reached, and that I was planning to withdraw most of the money for a major expense soon anyway.
TD Ameritrade then said the default money market account my money was in only gives a fraction of a percent interest and I can get a greater rate from a higher yielding money market. I asked many questions such as “Was it just as safe?” and “Was it insured like the default money market account?” They said yes and after a fairly long conversation convinced me to move all my money into that fund.
I know the exact date and the time of the call and requested by certified mail for a copy of the recording. TD Ameritrade acknowled that they record all phone conversations but refused to give me a copy of the recording. I then sent by registered mail a request for them to then review the recording and reverse that purchase since I never agreed to buy a mutual fund, which is what happened, when all I agreed to was for my money to be moved into a money market account that was just as insured and just as safe . They didn’t respond to that request so I am about to search for a good attorney. This wasnt chump change involved. I never have and never would agree to leverage all my assets into a single stock or mutual fund!
Comment by Laura on 13 December 2008:
We also were told this was a money market account that was very safe with higher yields. I told the representative I was looking for a vehicle that would provide a little higher interest rate. He highly recommended this account and gave me their web site. After some research, it all looked positive with zero risk, so I invested.
Comment by C Anders on 15 December 2008:
Same with others RYPQX touted as safe MM fund; I was never notified of anything but found out it was frozen - now what do we do?
Comment by Judy on 15 December 2008:
I was also told that my money was insured and it was very safe and I would make about 2% interest on my money each month. This was my life savings. I had no idea what was going on until one day I received a letter from TDAmeritrade saying my money was frozen. I also feel that we all were misled and defrauded by representatives of TD Ameritrade who lied to about The Reserve Yield Plus Fund. I’m happy we are getting 50% of our money back, but when and how much will we get the rest of it????
Comment by Ricardo on 20 December 2008:
Two weeks ago, the Reserve website had a press release informing of a planned distribution from Yield Plus (RYPQX) scheduled for 12/22/08. They said they intended to distribute then-present cash holdings which were about half the total portfolio.
That would at least “unfreeze” some of the money that people put into the fund, so at least it was a step in the right direction. They said they had to figure out how to divvy that money up among all the shareholders out there, but one would think that we should all get a bit less than half of our holdings liquidated by that means.
As for the remainder, we know that it won’t add up to 100%. That much has been clear for weeks. The website gave no specifics, but the language hinted that they might just wait a year or more until all the bond holdings matured, because it would be impossible or unlikely to sell any of them at face value.
Assuming no other bond issuers fail in the meantime, holding all the remaining bonds to maturity would be the most effective way to maximize the preservation of shareholder capital, which is part of their mandate by charter, and possibly by regulation. We already know that we’ll be out at least 3% due to the now-worthless Lehman holdings still listed in the portfolio. If we push for full liquidation faster, the loss might be more than 3%. So I was resigning myself to getting some cash now, and waiting for the rest.
Well guess what? That press release is no longer on the website. The current one about RYPQX explains that, Gee Whiz, we screwed up the math when we honored last-minute redemptions back in September. There was another (non-Lehman) worthless holding that showed on the books as having value, which was a mistake they failed to catch. So people who cashed out that day got a full $1.00 per share when they should have only gotten 99 cents.
What does the Reserve plan to do — sue all those people for a penny per share of repayment? I don’t know, but from the disapperance of the press release, it appears that the planned liquidation on December 22 is now on hold or abandoned, because now they’ve discovered they have yet another accounting mess to clear up first.
What kind of imcompetent nitwits are these people? TDAmeritrade is partly at fault for suggesting the Reserve, and if they made money from commissions or other (legal) kickbacks in that arrangement, one might suggest that TDAmeritrade take a write-down and an earnings hit, to use some cash and make good on the losses people are taking from this mess. Alternatively, they might consider providing people interest-free cash for investment that would be collateralized by some percentage (like 50% at least) of the customer’s RYPQX holdings.
All in all, TDAmeritrade could be a lot more proactive, I think.
Comment by Mike on 24 December 2008:
When I threatened to move my cash from a mediocre TD MM account to a higher yielding Vanguard MM fund a TD Branch Manager sold me RYPQX saying it was just as safe and had a slightly better yield. The VG Prime MM fund is fine - I’m using margin for a down payment on a house at around 9%. TD better make up for any losses or I’m moving my $ to VG.
Comment by SCHE on 26 December 2008:
Can someone out there who has money in this yield plus fund tell me what is the best thing to do now? I don’t know if I just keep waiting for a to-be-distribution or should I join a class action to get my money back? I like to hear one knows this and is an investor of this fund’s.