Charles Schwab Corp. violated federal laws when it failed to get shareholder approval before putting approximately half the assets of its YieldPlus mutual fund into uninsured mortgage-backed securities, a federal judge ruled.
U.S. District Judge William Alsup in San Francisco said Schwab's decision to move its assets marked "an entire repudiation" of previous limits, and "a vote was required."
Assets in the fund plummeted 35.37% in 2008 and 10.52% in 2009, according to Morningstar Inc.
"We are going to have a damages trial, and we think damages will be easily proven," Steve Berman, a partner at Hagens Berman LLP in Seattle representing investors seeking recovery from Schwab, told Reuters.
Schwab has argued that it didn't need shareholder approval to lift the fund's limit on the debt because mortgage-backed securities are not an "industry" subject to a 25% cap on industry investments.
"We look forward to putting all the facts, evidence and expert testimony to the jury and presenting a strong case at trial," said Schwab spokesman David Weiskopf.