Charles Schwab

Federal Court Remands Charles Schwab RMBS Action to State Court

On February 23, 2011, the United States District Court for the Northern District of California remanded to state court an action by Charles Schwab Corporation against 27 defendants concerning alleged misrepresentations in connection with 37 different RMBS purchases across 36 different securitizations. Two defendants had argued that the federal court had jurisdiction over the case because the action “relates to bankruptcy” due to the fact that 262 of the underlying loans were originated by a bankrupt entity who would owe the defendants an indemnity for any misrepresentations on those loans. Without answering whether the indemnity claims at issue were enough to trigger “related to” jurisdiction, the court relied on its equitable power to return the case to state court because any connection to the bankruptcy case was “very, very remote.” Among other things, the court noted that the 262 loans constituted only 5.5% in one of the 36 securitizations at issue, and that the plaintiffs were not asserting any misrepresentations in connection with those particular loans. Order.

Schwab Pays $119 Million to Settle with SEC Regarding MBS Investments

On January 12, 2011, Charles Schwab Corp. announced a settlement with the SEC related to claims that it misled investors in connection with a mutual fund heavily invested in private mortgage-backed securities. The SEC’s claims included that the mutual fund, YieldPlus, was improperly marketed as low risk, and that the fund violated its own investment concentration rules. The case will proceed against the named individual defendants, who were not part of the settlement.  SEC Press Release.