Schwab Settles State YieldPlus Fund Suit

Charles Schwab has agreed to pay $35 million to settle a California state court suit over the Schwab YieldPlus Fund.

A Schwab announcement said the money is in addition to the $200-million settlement of federal court claims about the YieldPlus fund that the company announced in April (see “Schwab to Pay $200M in Bond Fund Suit Settlement“). While repeating that it has not admitted or denied guilt over allegations made about the fund, Schwab said the agreements allow it to avoid the distraction and uncertainty of a trial and the further possibility of a protracted appeals process.

Based on the newest settlement, Schwab said it increased the contingency reserve in connection with the litigation by $14 million pre-tax, which is net of expected insurance coverage. Together with previously reported reserves of $182 million pre-tax in connection with the federal and state claims, the combined reserve reduces first quarter 2010 net income by approximately $120 million, or $0.10 per share, the company said.

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According to Schwab, 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. The credit crisis led to a decline in most fixed income investments, which Schwab claimed led to the investor losses that were the subject of the federal and state litigation.

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