Seems like Northern District Judge William Alsup is intrigued by a securities class action against Charles Schwab — even if his rulings are coming at the expense of his old law firm.
Alsup denied Schwab summary judgment Thursday in a case resulting from the recent housing market crash. Plaintiffs say Schwab violated securities laws by telling investors it would only put up to 25 percent of the assets in its YieldPlus fund in any one industry. But, alas, Schwab changed the rules mid-stream and concentrated over 45 percent in mortgage-backed securities. Big mistake.
The company — represented by lawyers at Morrison & Foerster, where Alsup was a longtime partner before joining the bench — tried to argue that it put investors on notice about what it was doing. But Alsup wouldn’t buy it. He compared the scheme to a hypothetical fund that says it will invest in T-Bills, but instead puts everything in a “legitimate” treasure-hunting company.
“Can the fund promoter escape on the ground that the loss was due to the failure to find the treasure? Of course not,” he wrote. “Similarly, if a mutual fund holds itself out as investing no more than 25 percent in a single industry but then, as actually planned, invests 50 percent in a single industry, there is no escape by blaming the industry rather than the promoter.”