Schwab Reaches Tentative Deal on Class Action Settlement—Again

Schwab said it notified counsel for the plaintiffs that it was backing out of the agreement because plaintiff lawyers claimed the settlement was not all-encompassing, and they still had legal right to sue the company on behalf of other investors.

According to Schwab, in the spring of 2010 it agreed to a settlement of $235 million to settle all claims in the YieldPlus class action proceedings, regardless of their merit. Schwab said it 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 at the time praised the settlement as one in which clients would receive "real money" and "a high percentage of recovery."

The company argues that until the credit crisis, the YieldPlus Fund was consistently one of the best performing funds in its category for eight years and held a Morningstar 5-star rating from December 2004 through September 2007. Even in the face of the credit crisis, the company notes YieldPlus shareholders lost, on average, only 7.5% of their investment when dividends are counted.