Charles Schwab Corporation Case 8/28/2008
On Thursday, August 28th, 2008, a shareholder has filed a lawsuit on behalf of persons who owned shares of the Schwab Total Bond Market Fund (MUTF:SWLBX) at any time August 31, 2007 to the present against Schwab Total Bond Market Fund alleging the fund deviated from its stated investment objective by investing in high risk non-U.S. agency collateralized mortgage obligations
According to the complaint the Schwab Total Bond Market Fund’s registration statement and subsequent supplemental prospectuses, Schwab Investments emphasized the conservative nature of the Fund’s indexed securities by stating the SWLBX Fund was designed to offer high current income by tracking the performance of the Lehman Brothers U.S. Aggregate Bond Index and was intended for investors seeking to fill the fixed income component of their asset allocation plan. According to a press release from a law firm the complaint alleges that Schwab Total Bond Market Fund deviated from its stated investment objective by investing in high risk non-U.S. agency collateralized mortgage obligations (CMOs). The non-U.S. agency CMOs were not part of the Lehman Brothers U.S. Aggregate Bond Index and were substantially more risky than the U.S. agency securities and other instruments that comprised the index, so the lawsuit. The plaintiff alleges that the Fund also deviated from its stated fundamental investment objective by investing more than 25% of its total assets in U.S. agency and non-agency mortgage-backed securities and CMOs, while its investment objectives prohibited any concentration of investments greater than 25% in any industry, other than if necessary to track the Lehman Brothers U.S. Aggregate Bond Index. According to the complaint the Defendants’ deviation from the SWLBX ’s investment objective exposed the Schwab Total Bond Market Fund and its shareholders to tens of millions of dollars in losses stemming from a sustained decline in the value of non-agency mortgage-backed securities. As a result from the deviation of its stated investment objective caused a negative total return of 1.09% for the period September 4, 2007 through August 27, 2008, compared to a positive return of 5.92% for the Lehman Brothers U.S. Aggregate Bond Index over that period.