The Charles Schwab Corp. YieldPlus Fund, a short term bond fund, turns out to be another failed vehicle employed by brokers to lure unsuspecting senior investors with conservative investment profiles into products that were made toxic by their exposure to the sub-prime mortgage market.  According to Bruce Kelly’s InvestmentNews item in the October 19 issue, from its $13 billion in assets a year and a half ago through earlier this month “the fund lost more than 30% of its value and saw its assets drop 95% to $432 million.”

At least one recent FINRA arbitration panel is reported to have awarded over $540,000 against the firm and in favor of the investor, a retiree.  This may be a promising sign that FINRA arbitrators, in spite of the new economic climate, will be sympathetic to the plight of similar customers caught up in such obviously unsuitable investments.  It’s also encouraging news for many senior citizens and retirees who regularly contact us.

The caveat, noted on FINRA’s Web site, is that Schwab was the first brokerage firm to have filled its first-year allotment of ten cases in the Pilot Program* that began this month for investors who bring claims but choose not to have an industry representative on the panel.  This means that the next investors who file claims against Schwab at FINRA will have to go through the regular FINRA system until October 2009, when Schwab is committed to another ten cases allotted under the Pilot Program.

* * *

* FINRA describes the program as “a voluntary two-year Public Arbitrator Pilot Program (Pilot Program), which allows investors in three-arbitrator cases naming only a participating firm to have a panel consisting of three public arbitrators, instead of two public arbitrators and one non-public arbitrator. . . . FINRA designed the Pilot Program to give investors greater choice when selecting an arbitration panel. In some cases, investors may prefer to have on their arbitration panel an arbitrator who appears on the non-public arbitrator list. If the investor does not want a non-public arbitrator to serve on the case, then the investor may strike all proposed arbitrators on the non-public list.”

See our commentary on the Pilot Program.