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Rating:Schwab Faces a Revived Index Fund Lawsuit Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, March 10, 2015

Schwab Faces a Revived Index Fund Lawsuit

News summary by MFWire's editors

A class-action lawsuit over a Charles Schwab [profile] index mutual fund is back from the dead.

Today the Ninth U.S. Circuit Court of Appeals resurrected Northstar v. Schwab, sending it back to U.S. District Judge Lucy Koh in San Jose, California. Jonathan Stempel of Reuters broke the news.

The fight revolves around the Schwab Total Bond Index Fund. Northstar is an RIA that had clients invested in the fund, and the suit attacks Schwab for deviating from the index fund's benchmark, the Lehman Brothers U.S. Aggregate Bond Index (now rebranded as a Barclays index), by investing more than 25 percent of the fund "in non-agency mortgage securities and collateralized mortgage obligations," Reuters writes. Thus, the complaint goes, the fund's performance suffered from September 1, 2007 through February 27, 2009.

"We are reviewing the opinion and expect to continue to defend the allegations in court," Schwab spokeswoman Sarah Bulgatz tells the wire service.

The plaintiff's appellate victory wasn't unanimous. Two judges voted in favor of the plaintiffs' appeal, yet Judge Carlos Bea voted against the plaintiffs. He argued that Northstar lacks standing as it is Northstar's clients, not Northstar itself, that owned the fund. 

Edited by: Neil Anderson, Managing Editor


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