Charles Schwab YieldPlus Class Action Opt-Out Date Set for Dec. 28

A federal court overseeing the Charles Schwab YieldPlus class action lawsuit has set a deadline of December 28, 2009, for members of the class to opt-out and pursue their own individual financial fraud claims.

The U.S. District Court in San Francisco issued a notice of pendency on Monday that includes detailed instructions on participation in the class action lawsuit, which involves claims that Charles Schwab misled investors and failed to properly disclose the nature of risks associated with certain securities held by Schwab YieldPlus bond funds.

The notice informs investors who qualify to participate in the suit that they need not take any action to be included as a class member. However, if an investors wishes to maintain their right to pursue an individual Schwab YieldPlus lawsuit or arbitration claim, they must opt-out before Monday, December 28, 2009.

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Three classes of investors have been certified, including individuals and entities who acquired shares of the Schwab YieldPlus Funds Investor Shares (SWYPX) and Schwab YieldPlus Funds Select Shares (SWYSX). The first class includes all individuals or entities who acquired shares between November 15, 2006 and March 17, 2008, who were damaged and received a false and misleading registration statement. The second class includes all individuals or entities who acquired shares between May 31, 2006 and March 17, 2008 who received a false and misleading prospectus for the fund. The final class includes all California investors who held shares on September 1, 2006.

The Schwab YieldPlus funds are ultra-short bond funds that were heavily promoted by the Charles Schwab as conservative investment alternatives to money market funds or cash. Despite being advertised to generate income with minimal changes in share price, the funds lost 31.7% of its value between June 2007 and June 2008 due to heavy investments in risky subprime mortgages, which investors claim violated the prospectus. By comparison, other ultra-short bond funds only lost an average of 0.16% during the same period.

Financial fraud lawyers have suggested that many investors may be better served by pursuing an individual arbitration claim to recover their Schwab YieldPlus losses through the Financial Industry Regulatory Authority (FINRA), as opposed to participating as a class member. Panels of FINRA arbitrators have already heard a number of claims filed by investors, awarding losses of more than $20 million so far.


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