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Von Aldo

Schwab "to fight the power," er, terminates YieldPlus fund class action settlement

Good for the Charles Schwab Corp. (and with apologies to the hip hop group Public Enemy, authors of the song, "Fight the Power"). Yesterday it issued a press release saying it was backing out of a settlement of $235 million involving its YieldPlus Fund, because the plaintiffs' attorneys said the deal, forged back in the spring of 2010 after, Schwab says, "a lengthy and cooperative negotiation," won't prevent them from seeking other class action suits. (The plaintiffs' attorneys contend the deal is for California resident shareholders only.) The release states that "Schwab agreed to a substantial settlement . . . to settle all claims in the Yield Plus class action proceedings, regardless of their merit." Schwab is going to litigate. A class action suit without merit? No way. Schwab shareholders best cross their fingers that the case won't be heard in a Mississippi courtroom, the tort bars preferred venue.

Schwab points out that Charles R. Schwab --- you might know him as Chuck (a guy you can "talk to" to resolve your investing conundrums --- was the "largest individual shareholder" in YieldPlus and therefore suffered losses just like everyone else. Schwab's lawyers also point out that:

"Until the credit crisis, the YieldPlus Fund was consistently one of the best performing funds in its category for eight years and held a Morningstar 5-star rating from December 2004 through September 2007. Even in the face of the credit crisis, YieldPlus shareholders lost, on average, only 7.5 percent of their investment when dividends are counted. [emphasis added] Schwab looks forward to the opportunity to prove at trial that the mortgage-backed securities investments challenged by the plaintiffs, far from being the cause of harm to fund investors, performed comparably and potentially better than alternative investments such as corporate bonds and asset-backed securities, during the credit crisis." (Why not sue most equity fund managers, too, since their shareholders got crushed by a helluva lot more in the debacle?)

Yes, the mortgage-backed fiasco hurt more than just investors in the capital markets. But to me, it was everyone's fault, fueled by the policies of the federal government. (Just look at the financial condition of Fannie Mae and Freddie Mac for proof.) But the tort bar loves to extort the private economy whenever possible. Cases such as this also represent to me a "criminalizing" of risk.

As for ambulance chasers, I have a suggestion: Let's make punitive damages (as opposed from compensatory damages awarded to the injured parties) payable to the U.S. Treasury and not to the plaintiffs or their counsel (i.e. no fees based on punitive damages). That might put a damper on some of these ridiculous lawsuits. Next to the gub'ment (say with your best Michigan Militia accent), the tort bar is probably one of the biggest drags on the economy.

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