Charles Schwab Corp. added a record number of independent investment advisors in 2009 as thousands of brokers left Wall Street firms, like Bank of America, Merrill Lynch, and Morgan Stanley Smith Barney, to launch their own investment advisory firms. See Reuters “Schwab says ‘breakaway broker’ trend has legs,” by Joe Rauch, Jan. 25.
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Independent financial advisers are gaining on Wall Street brokers in the competition to manage more than $5 trillion in Americans' savings, according to E. S. Browning in his recent Wall Street Journal article, “More Brokers Flee Big Firms, Taking Investors With Them.”
A Financial Industry Regulatory Authority (FINRA) arbitrator awarded damages to Mr. Weigel as a result of losses sustained in the Schwab YieldPlus Fund. The panel awarded the Mr. Weigel $19,400 in a claim submitted under FINRA’s special “simplified” procedure for claims of $25,000 or less (exclusive of interest and costs). Mr. Weigel’s actual trading loss in Schwab YieldPlus Fund was $22,279 while his net out of pocket loss was $15,359. In a simplified claim, a single arbitrator decides the case based on the paper submissions of the parties without an in-person hearing.
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Time is running out for Schwab YieldPlus investors to opt out of the class action. A properly completed Request for Exclusion must be received by the class action administrator no later than December 28, 2009. With the holidays, the time to do that is running very short.
A federal court recently certified a class action against Charles Schwab & Company, Inc. brought on behalf of investors in the Schwab YieldPlus Fund. The certification means that the lawsuit can proceed as a class action; no settlement has been reached. Most importantly for YieldPlus investors with significant losses, the deadline to be excluded from this class action is December 28, 2009.
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A federal court recently certified a class action against Charles Schwab & Company, Inc. brought on behalf of investors in the Schwab YieldPlus Fund. The certification means that the lawsuit can proceed as a class action; no settlement has been reached. Most importantly for YieldPlus investors with significant losses, the deadline to be excluded from this class action is December 28, 2009. Otherwise, YieldPlus investors who happen to be class members (i.e., who purchased the YieldPlus Fund within certain dates) are automatically included and will be bound by any settlement that may be reached.
Investors in Charles Schwab’s YieldPlus Fund need to be aware of their options in light of the recent certification of a class action brought by YieldPlus investors against Schwab. Most importantly, YieldPlus investors who are class members need to request exclusion from the class if they wish to maintain individual claims against Charles Schwab (even if those claims are already filed). Requests for exclusion must be properly filed and received by the claims administrator no later than Monday, December 28, 2009.
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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.
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Investors in Charles Schwab’s YieldPlus Fund have important decisions to make. Recently, a California Federal court tentatively certified a class action brought by YieldPlus investors against Schwab. YieldPlus investors need to determine (i) whether they are members of one or more of the designated classes, (ii) if so, whether they wish to remain in the class action or pursue individual claims against Schwab, and (iii) what actions, if any, they need to take.
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Citigroup Global Market, Inc. has filed a motion to dismiss an action against it by KV Pharmaceuticals Co. arising out of sales of auction rate securities, according to an August 25 article in Law360 by Christine Caufield entitled "Citigroup Argues KV Pharma Knew ARS Risks." The case is pending in the United States District Court for the Eastern District of Missouri. Citigroup appears to following the playbook of other Wall Street firms, arguing that KV was a "sophisticated investor" that knew the risks of ARS, that KV failed to identify any material misrepresentations by Citigroup, failed to allege it relied on any Citigroup statements in deciding to invest, failed to establish any actual loss, and failed to file suit before the statute of limitations ran out.
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A Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panel awarded damages to a California resident as a result of losses sustained in the Charles Schwab YieldPlus Fund. The panel awarded the Eliots $80,000, plus an additional $16,000 designated as expert witness fees, plus $300.00 as reimbursement for the non-refundable portion of the initial filing fee, and assessed the entire cost of the arbitration proceeding against Charles Schwab (SCHW).
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A Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panel awarded market adjusted damages to a California resident as a result of losses sustained in the Charles Schwab YieldPlus Fund. The panel awarded Victor Chang 100 percent of his market-adjusted damages of $74,745.00, plus an additional $13,500.00 designated as expert witness fees, plus $225.00 as reimbursement for the non-refundable portion of the initial filing fee, and assessed the entire cost of the arbitration proceeding against Charles Schwab (SCHW).
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A Nevada based Financial Industry Regulatory Authority (FINRA) arbitration panel awarded damages to a Nevada couple as a result of losses sustained in the Charles Schwab YieldPlus Fund. The panel awarded the Raymond and Elsie Kelly 100 percent of their net out of pocket losses of $74,430.77 plus interest at the rate of 3.25% per annum from July 8, 2008 through August 26, 2009, plus an additional $25,650.00 designated as attorney’s fees, and assessed the entire cost of the arbitration proceeding against Charles Schwab (SCHW).
Charles Schwab’s recent article in the Wall Street Journal, entitled “Brokers Aren’t Responsible for Bad Bets,” is a cynical attempt to change the subject that compares very unfavorably with the intellectual honesty of Warren Buffet, according to Susan Antilla in her August 21 article in Bloomberg.com. Mr. Schwab’s article was in response to a lawsuit filed against Charles Schwab & Co., Inc. by the Attorney General of New York. The lawsuit alleges, in essence, that Schwab owed its customers a duty to properly understand and make accurate representations concerning the auction rate securities it sold, and that Schwab breached that duty by misrepresenting them as liquid, short-term investments without discussing the risks. These representations gave investors a false sense of security that their investments would always be liquid when auction rate securities, in fact, faced significant, inherent liquidity risks. The Complaint can be found at http://www.oag.state.ny.us/media_center/2009/aug/aug17a_09.html.
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Investors are leaving big, full service firms like Morgan Stanley Smith Barney and Bank of American Merrill Lynch, and investing their money through online discount firms like Schwab and TD Ameritrade, according to a recent CNBC.com article called “Investors Dump Brokers to Go It Alone.” This has been happening for some time now, but the trend has accelerated since investors were badly burned by the toxic securities sold by major financial institutions and the related collapse and near-collapse of many of those financial institutions.
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Fidelity Investment has joined Charles Schwab and Morgan Stanley Smith Barney in warning customers about the complexity and risks of Leveraged Exchange Traded Funds (ETFs), reported Daisy Maxey in her article, “Fidelity the Latest to Caution on ETFs,” published in the August 4 Wall Street Journal. Fidelity’s web site now states: “Most [Leveraged ETFs] reset daily and seek to achieve their objectives on a daily basis. Due to compounding, performance over longer periods can differ significantly from the performance of the underlying index.”
In her recent article in the Wall Street Journal, Eleanor Laise reports that sales of Leveraged and Inverse Exchange Traded Funds (ETFs) have exploded to $32.8 billion as of June 2009, almost tripling the $11 billion held at the start of 2008. The number of such ETFs has increased to 119, an increase of 86%, over the same period. “The explosive growth in this area over the past year reflects an aggressive sales effort,” said William F. Galvin, Secretary of the Commonwealth of Massachusetts. These products are unsuitable for and should not have been sold to most investors.
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In the wake of a FINRA Regulatory Notice and a number of articles in the financial press, some brokerage firms say they are either issuing warnings about the products or silently following the discussions surrounding them. So reports Daisey Maxey of the Wall Street Journal in her July 30 article entitled “Warning Signs Up for Leveraged ETFs. Morgan Stanley Smith Barney says its sales of leveraged and inverse ETFs is “under review.” Charles Schwab says it is warning clients to “proceed with extreme caution” because “these funds may not give you the returns you may be expecting.” Schwab says that, while it does not “recommend” leveraged ETFs, investor may purchase them on their own through Schwab. Likewise, TD Ameritrade says it does not “actively sell” leveraged ETFs but they are available on its web platform.
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The Securities Industry and Financial Markets Association, an important Wall Street lobbying group, has decided to support the Obama administration’s proposal to hold brokers to the same standard as a fiduciary when they provide investment advice, according to a recent report in The Wall Street Journal. While investors who sue their brokers have long argued, with considerable success, that a fiduciary duty arises whenever there is a relationship of trust and confidence between broker and investor, that determination is presently made on a case by case basis under laws that vary from state to state. A federal standard, which is more likely to pass now that it has been endorsed by the industry, would make it easier for investors to prevail in claims against brokers.
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New York Attorney General Andrew Cuomo has sent a letter to Charles Schwab & Co. giving notice of his intent to bring a civil fraud suit against the brokerage firm for its sales practices in connection with auction rate securities. Auction rate securities are variable rate instruments in which the rates are determined through periodic auctions, but since the auction markets collapsed in February 2008 the investors holding such securities have been unable to liquidate their investments. In an enforcement letter dated July 17, 2009, Cuomo’s office contends that Schwab misrepresented to its customers that auction rate securities were a safe, liquid cash equivalent without disclosing that the liquidity of the securities was completely dependent upon the success or failure of the auction process, which was subject to manipulation by the broker-dealers who sold the securities and ran the auctions.
