REFILE-Schwab faces suit over subprime mortgage bond funds
(Refiles to fix typo in paragraph 1
NEW YORK, March 26 (Reuters) - Financial services firm Charles Schwab Corp (SCHW.O) is being sued over bond funds that plummeted under the weight of securities backed by subprime mortgages.
A suit filed in the federal court in the Northern District of California is seeking class-action status for investors who purchased shares of Schwab YieldPlus Funds Investor Shares SWYPX.O and Schwab YieldPlus Fund Select Shares SWYSX.O. from March 17, 2005, through the day the suit was filed on March 18, 2008.
A representative from Schwab could not be reached for comment.
According to the suit, Schwab marketed the bond funds as higher yielding alternatives to money-market funds, offering safety and the ability of investors to quickly access cash. The funds were known as ultra-short bond funds, which buy short-term debt, including subprime, and have fewer investment restrictions than money funds, the suit said.
The funds are mutual funds and were advertised as "a safe alternative to money market funds that preserve principal while being 'designed with your income needs in mind,' " the suit said.
However, the funds have lost over 18 percent since June and almost 11 percent for the year, while the average loss for the category has been 1.12 percent, the lawsuit said.
The suit accuses Schwab of either omitting or misleading investors by not revealing the "lack of true diversification of the funds' assets," and their concentration in subprime mortgages. It says the funds were neither liquid nor low-risk. (Reporting by Ilaina Jonas; Editing by Gary Hill)
