- Survivors pulled from Oklahoma tornado debris as toll falls |
- Analysis: Some Republicans see new scandal in Sebelius fundraising
- Convicted U.S. killer Arias would join tiny death row group
- Drop in U.S. underground water levels has accelerated -USGS
- Israel fires back at Syria after gunshots at its troops
U.S. judge rules against Schwab in YieldPlus case
* Judge says shareholder vote was needed
* Fund suffered big losses as housing market tumbled
NEW YORK, March 31 (Reuters) - A federal judge ruled that Charles Schwab Corp (SCHW.N) should have sought approval from shareholders of its YieldPlus SWYSX.O mutual fund before putting more than 25 percent of the fund's assets into mortgage-backed securities.
The ruling is a victory for YieldPlus investors suing to recover what they say are several hundred million dollars of losses resulting from the fund's exposure to declining real estate values and tightening credit markets.
YieldPlus is an "ultra-short" mutual fund, a type of fund that many companies marketed as a possible alternative to cash investments, but without any guarantee that principal would be protected.
The fund gained between 2.37 percent and 6.05 percent in every calendar year between 2000 and 2006, but fell 1.04 percent in 2007, 35.37 percent in 2008, and 10.52 percent in 2009, according to Morningstar Inc.
YieldPlus once had more than $13 billion of assets, but now has less than $200 million, Morningstar said.
Schwab had contended that a shareholder vote was not needed, because the mortgage securities at issue did not constitute an "industry" subject to the fund's 25 percent cap on any industry concentration.
But U.S. District Judge William Alsup ruled that Schwab "drew a clear line" by expressly telling investors in the fund's offering documents that it would not invest more than 25 percent of the fund in uninsured mortgage-backed securities, and defined that debt as a stand-alone industry.
"Shareholders in the fund were entitled to count on that limitation unless and until changed by a vote of the shareholders," the judge wrote.
Schwab, based in San Francisco, did not immediately return a call seeking comment.
The case is In re: Charles Schwab Corp Securities Litigation, U.S. District Court, Northern District of California, No. 08-01510. (Reporting by Jonathan Stempel; editing by John Wallace)
- Tweet this
- Share this
- Digg this