The securities law firm of Klayman & Toskes filed a class action lawsuit (Case No. CV-10-3971) against Charles Schwab on behalf of investors who purchased Schwab's Total Bond Market Fund.  Charles Schwab is accused of causing the Fund to deviate from its fundamental investment objective to track the Lehman Brothers U.S. Aggregate Bond Index.

Specific Accusations.  "The Fund deviated from its stated investment objective by investing a material percentage of its portfolio in high risk non-agency collateralized mortgage obligations ("CMOs").  The non-agency CMOs were not a part of the Index and were substantially more risky than the U.S. agency securities and other instruments that comprised the Index."  "The Fund … deviated from its stated fundamental investment objective by investing more than 25% of its total assets in non-agency BSS's and CMO's. The Fund's investment objectives prohibited any concentration of investments greater than 25% in any industry (other than if necessary to track the Index)."

K&T apparently seeks to represent investors in the Schwab fund either in the class action suit or in an arbitration claim.  K&T notes that participation in a class action lawsuit offers investors the opportunity to recover nominal amounts, whereas, those who experienced significant losses in the Schwab fund may find it more beneficial to file an individual securities arbitration claim.  In 2003, K&T conducted a detailed study of securities arbitration versus class action, which concluded that arbitration claims traditionally offer an overall higher rate of recovery as opposed to participation in a class action lawsuit. To view the full results of the comparison, click onto:  [ K&T Study ]  [PR Newswire, 10/31]