A Schwab news release said the settlement came in a consolidated class action litigation filed in mid- 2008 relating to the investment policy, disclosures, and marketing of the YieldPlus Fund, an ultra-short bond offering (SEC Hits Schwab with Wells Notice over Bond Fund).
Schwab said the fund was designed to invest in a variety of fixed income instruments, including corporate bonds, asset-backed securities, mortgage-backed securities, and other fixed income investments. Because of the effects of the 2007 credit crisis on the markets, Schwab said, clients who had lost money filed the suits.
The preliminary settlement is subject to a definitive agreement and final approval of the court. Other related regulatory matters and a California state law claim remain open. Schwab said it admitted no liability in the settlement.
Based on the preliminary settlement agreement, the company has increased the contingency reserve previously established in connection with the litigation by $172 million pre-tax, which is net of expected insurance coverage and will reduce first quarter 2010 net income by approximately $105 million, or $0.09 per share.