Charles Schwab will pay $200 million to resolve a federal class action lawsuit filed by investors who say the financial holding company misled them over the safety of mortgage-backed securities.
Charles Schwab Corp. said it agreed to pay $200 million to settle claims that it misled investors on the amount of mortgage-backed securities held by its Schwab YieldPlus Fund.
Schwab signed a memorandum of understanding to settle the claims filed in 2008 by paying the $200 million to plaintiffs, without admitting liability and avoiding trial, the San Francisco-based company said today in a statement. The settlement agreement cuts first-quarter net income by $105 million, or 9 cents a share, bringing the company's net income reported last week down to $14 million, or 1 cent per share.
The lawsuit alleged that Schwab incorrectly described the fund, once the world's largest short-term bond fund, as “safe.” The plaintiffs sought damages of as much as $802 million, the estimate of losses made by their lawyers' experts. A trial was scheduled for May.
Schwab shares climbed 1.6 percent to $19.36 at 10:01 a.m. New York time. They had risen 1.3 percent this year through yesterday, compared with a 5 percent gain in the NYSE Arca Securities Broker/Dealer Index.
The case is In Re Charles Schwab Corp. Securities Litigation, 08-cv-01510, U.S. District Court, Northern District of California (San Francisco).