Charles Schwab has agreed to settle a federal class-action lawsuit related to its YieldPlus Fund for $200 million, far less than the $800 million plaintiffs had sought.
The settlement, announced Tuesday, is subject to a definitive agreement and final approval of the court. Other related regulatory matters, including a Securities and Exchange Commission investigation, and a case in a California court remain open.
The San Francisco company said it has set aside $172 million in the first quarter to pay for the settlement.
The class-action suits were filed between March 2008 and May 2008, after a regulatory investigation related to the investment policy, disclosures, and marketing of the Schwab YieldPlus Fund, an ultra-short bond fund that 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.
After the credit crisis, investors in the fund experienced a decline in their investments leading to the litigation.
Schwab said the settlement, which it entered without admitting liability, “allows the company to avoid the distraction and uncertainty of a trial, and the further possibility of a protracted appeals process.”
“We believe that bringing this aspect of the case to a constructive conclusion is in the best interests of all parties, including the company, its stockholders, and clients,” Schwab President and CEO Walt Bettinger said in a press release. “Today’s agreement represents the most effective way for us to move forward and maintain our focus on serving clients."
Schwab said other related regulatory matters remain pending and “the company is unable to predict the outcome of these matters or to estimate the range of any potential liability.”