Shine and Vernon Legal Team: Retiree Suing to Recover Significant 401(K) Losses in Schwab’s YieldPlus Fund Fiasco

Naples, Fla. — Charles Schwab & Co.’s removal of one of its most prominent fund managers has come too late for investors now suffering the disastrous consequences of the reckless mortgage and asset-backed security strategy orchestrated in Schwab’s YieldPlus Fund.

A retired emergency room physician from Hawaii, who lost more than $150,000 of the $510,000 he invested in Schwab’s YieldPlus Fund in his 401(k), filed an arbitration claim today that seeks recovery of his losses and damages.

Schwab marketed its YieldPlus Fund to retirees and others as a safe and conservative “cash alternative” but the bond mutual fund’s price has decreased by more than 30 percent in the last year.  This price decrease has resulted in the virtual liquidation of the Schwab YieldPlus Fund (SWYX, SWYPX) with the fund’s total net assets under management declining by more than $13 billion or — 96 percent — during the past year.

Schwab is contacting some investors with settlement offers, but investors with larger losses are filing arbitration claims in the face of Schwab’s typical offers to pay less than 10 cents on the dollar. Schwab’s offers come despite investors’ claims of misrepresentations and failures to disclose material facts by Schwab and former Schwab Yield Plus Fund manager Kimon Daifotis about the safety of the YieldPlus Fund to investors.

The claim, filed by former Securities and Exchange Commission attorney Thomas F. Shine and investor rights attorney Chris Vernon, contends that Schwab committed gross misconduct when it embarked on a “damage control” campaign and encouraged investors to hold on to their YieldPlus shares. Behind the scenes, Schwab quietly dumped 2.9 million YieldPlus shares from the portfolios of its other mutual funds during that time, from Jan. 31, 2008, to April 1, 2008.

On Schwab’s website, the brokerage giant compared the safety of its YieldPlus Fund to that of one and two-year certificates of deposit. But that safety was a sham: YieldPlus fund manager Daifotis put increasing portions of the fund’s assets into higher-risk asset-backed and mortgage-backed securities. That concentration ultimately put the fund at risk for an enormous failure. That failure began as the subprime crisis rocked Wall Street.

Shine and Vernon were the first attorneys to file an investor claim naming Daifotis as a respondent. One day after filing the claim in June, Schwab announced that it had replaced Daifotis as the fund manager of YieldPlus.

Investors from around the country are contacting Shine and Vernon, who have teamed up with other former SEC attorneys and investor rights attorneys on their investigation.

We are encouraging investors who’ve been contacted by Schwab to ask Schwab to retain custody of taped conversations between themselves and their investment advisor: We believe these recorded conversations will strengthen your potential claim against Schwab because it is unlikely that Schwab’s employees were even aware of the true level of risk associated with the fund, much less able to adequately disclose those risks to potential purchasers.

Shine, a former enforcement attorney with the Securities and Exchange Commission in Washington, D.C., is in private practice in the Melbourne, Fla. area. Chris Vernon is a founding partner of the Naples, Fla.-based law firm Vernon Litigation Group, which represents investors throughout the United States.

For more information, contact:

Thomas F. Shine, attorney at law


Christopher T. Vernon, attorney at law
(239) 319-4434

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