A Vero Beach, Florida investor who has lost over $100,000 in the Schwab YieldPlus Fund (Symbols SWYSX and SWYPX) has filed a securities arbitration claim against San Francisco, California based stock brokerage firm Charles Schwab & Co., Inc. and Kimon Daifotis, the lead portfolio manager of the fund. The Schwab YieldPlus Fund was supposedly a safe Charles Schwab proprietary ultra-short bond fund that Charles Schwab improperly marketed to its customers nationwide as an "alternative for your cash." Charles Schwab on its website even compared the fund to the safety of one and two year certificates of deposit.
From 2003 through June 30, 2007, the Schwab YieldPlus Fund was one of the top performing funds in the ultra-short bond category as measured by Morningstar Mutual Funds, generating higher than average rates of return compared to money market funds while still maintaining good price stability. The fund's success was significantly aided by the fund managers investment of steadily increasing proportions of the fund's assets in higher yielding and higher risk asset-backed and mortgage-backed securities. The fund grew from $1.77 billion in total net assets in February 2003 to $13.49 billion as of July 31, 2007. This growth in the Schwab YieldPlus's total net assets was accompanied by a large surge in investment advisory fees being received by Charles Schwab and its affiliates during 2006 and 2007.
As a result of the Bear Stearns' hedge funds' collapse which occurred last June and July 2007, bond markets in general experienced a subprime lending credit crisis as bond investors fled from riskier privately issued bonds to extremely safe U.S. Treasury securities. With its high concentration of risky asset-backed and mortgage-backed securities, the Schwab YieldPlus Fund was hit particularly hard by over $2 billion in shareholder redemptions in August 2007. These redemptions forced Kimon Daifotis and his co-portfolio managers to sell a number positions in asset-backed and mortgage-backed securities held by the fund at significant discounts to their supposed market value because of the illiquidity of these types of securities. This distressed selling caused losses in the Schwab YieldPlus Fund that has sent the net asset value per share of the fund spiraling downward from $9.62 per share on July 31, 2007 to $6.29 per share on June 10, 2008. This price decrease reflects a price decline of over 31% during the past year compared to an average decline of 1.42% for all funds in the ultra-short bond fund category. Charles Schwab recently reported on April 1, 2008 that the Schwab YieldPlus Fund's total net asset value had shrunk to $1.54 billion, an 88.6% decrease in only eight months.
The Vero Beach, Florida investor's arbitration claim alleges Charles Schwab failed to disclose a number of material facts about the Schwab YieldPlus Fund both before and after he purchased the fund. These omissions included Charles Schwab's failure to disclose the liquidity risks associated with the fund's purchases of asset-backed and mortgage-backed securities and the fact that during February and March 2008, Kimon Daifotis was managing other Schwab proprietary funds which were liquidating over 2.9 million shares of the Schwab YieldPlus Fund while Charles Schwab and Mr. Daifotis were encouraging YieldPlus investors to hold on to their shares as the shares were steadily declining in value. It is believed that this case is the first arbitration claim naming Kimon Daifotis as a Respondent in connection with the Schwab YieldPlus Fund.
The Vero Beach investor who filed the arbitration claim is represented by Indialantic, Florida attorney Thomas F. Shine, a former SEC enforcement attorney with over 7 years of SEC experience and an additional 15 years of private practice experience representing investors. Mr. Shine is cocounseling this claim with fellow Public Investors Arbitration Bar Association attorney Christopher T. Vernon, a Naples, Florida attorney whose practice also focuses on the protection of investors. The Public Investors Arbitration Bar Association, a nationwide group of attorneys who represent investors with claims against brokerage firms and other financial services providers.
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From 2003 through June 30, 2007, the Schwab YieldPlus Fund was one of the top performing funds in the ultra-short bond category as measured by Morningstar Mutual Funds, generating higher than average rates of return compared to money market funds while still maintaining good price stability. The fund's success was significantly aided by the fund managers investment of steadily increasing proportions of the fund's assets in higher yielding and higher risk asset-backed and mortgage-backed securities. The fund grew from $1.77 billion in total net assets in February 2003 to $13.49 billion as of July 31, 2007. This growth in the Schwab YieldPlus's total net assets was accompanied by a large surge in investment advisory fees being received by Charles Schwab and its affiliates during 2006 and 2007.
As a result of the Bear Stearns' hedge funds' collapse which occurred last June and July 2007, bond markets in general experienced a subprime lending credit crisis as bond investors fled from riskier privately issued bonds to extremely safe U.S. Treasury securities. With its high concentration of risky asset-backed and mortgage-backed securities, the Schwab YieldPlus Fund was hit particularly hard by over $2 billion in shareholder redemptions in August 2007. These redemptions forced Kimon Daifotis and his co-portfolio managers to sell a number positions in asset-backed and mortgage-backed securities held by the fund at significant discounts to their supposed market value because of the illiquidity of these types of securities. This distressed selling caused losses in the Schwab YieldPlus Fund that has sent the net asset value per share of the fund spiraling downward from $9.62 per share on July 31, 2007 to $6.29 per share on June 10, 2008. This price decrease reflects a price decline of over 31% during the past year compared to an average decline of 1.42% for all funds in the ultra-short bond fund category. Charles Schwab recently reported on April 1, 2008 that the Schwab YieldPlus Fund's total net asset value had shrunk to $1.54 billion, an 88.6% decrease in only eight months.
The Vero Beach, Florida investor's arbitration claim alleges Charles Schwab failed to disclose a number of material facts about the Schwab YieldPlus Fund both before and after he purchased the fund. These omissions included Charles Schwab's failure to disclose the liquidity risks associated with the fund's purchases of asset-backed and mortgage-backed securities and the fact that during February and March 2008, Kimon Daifotis was managing other Schwab proprietary funds which were liquidating over 2.9 million shares of the Schwab YieldPlus Fund while Charles Schwab and Mr. Daifotis were encouraging YieldPlus investors to hold on to their shares as the shares were steadily declining in value. It is believed that this case is the first arbitration claim naming Kimon Daifotis as a Respondent in connection with the Schwab YieldPlus Fund.
The Vero Beach investor who filed the arbitration claim is represented by Indialantic, Florida attorney Thomas F. Shine, a former SEC enforcement attorney with over 7 years of SEC experience and an additional 15 years of private practice experience representing investors. Mr. Shine is cocounseling this claim with fellow Public Investors Arbitration Bar Association attorney Christopher T. Vernon, a Naples, Florida attorney whose practice also focuses on the protection of investors. The Public Investors Arbitration Bar Association, a nationwide group of attorneys who represent investors with claims against brokerage firms and other financial services providers.
Read more at CNNMoney or Yahoo! Finance
WP/PressRelease1a.SWYSX
