Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, November 10, 2010

Charles Schwab Terminates Settlement Over YieldPlus Fund

On November 8 Charles Schwab announced that it was invoking the termination clauses in settlement agreements in a consolidated class action lawsuit relating to the Schwab YieldPlus FundĀ®.   Schwab also filed with the court a notice of withdrawal from the original motions filed jointly by plaintiffs and defendants for final approval of the settlements.   According to the release:

In the spring of 2010 after a lengthy and cooperative negotiation with Plaintiffs' lawyers, Schwab agreed to a substantial settlement of $235 million to settle all claims in the Yield Plus class action proceedings, regardless of their merit. Schwab was fully prepared to contest the allegations at trial but wanted to provide significant and speedy financial benefit to valued clients who purchased or held the fund during the period covered by the lawsuit and to put the matter behind us. Plaintiffs' lawyers had praised the settlement as one in which clients would receive "real money" and "a high percentage of recovery."

Plaintiffs' recent assertions, that they continue to have the right to sue on behalf of non-California class members, means that none of the parties will receive the benefit of the agreement originally negotiated. As a result, Schwab has determined its only option is to withdraw from the settlement and litigate the case rather than subject the company and its shareholders to yet more litigation over the same issues. Schwab worked hard to settle this case for the benefit of its clients and shareholders and thought it had accomplished that goal. Schwab agreed to a generous settlement, but only in return for an end to all litigation over the facts and claims alleged in the consolidated complaints. Now that Plaintiffs have asserted that Schwab is not entitled to the primary benefit Schwab was to receive under the settlement, Schwab has no choice but to withdraw from the joint motions for final approval.

We look forward to a fair and complete hearing of the facts of this matter in court where it will be clear that the decline of the YieldPlus fund was caused by the credit crisis and unprecedented housing market collapse of 2007-2008, not by any Schwab wrongdoing.

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