Little Yield, in Yield Plus: Investors Sue

New York, NYYou wonder when it's all going to end. No, not the credit crisis or stock market losses, but the securities fraud that comes with promising more than you can deliver—and specifically, attempting to mitigate the risk in an effort to secure the investment and ink the deal. The whole, sorry mess that is the current economy should be ample warning to vendors and purveyors of stocks and securities that the investor has a legal right to the real story, rather than a broker's dumbed-down risk assessment just to capture the fee.

In one of the latest examples of misguided activities, it is alleged that The Reserve and TD Ameritrade misled investors down the garden path with regard to the Yield Plus fund. A lawsuit was filed in New York, late last month, on behalf of investors who lost money.

The allegation is that The Reserve pursued investments that carried a higher risk than that which was advertised. The lawsuit, which is proposed as a class-action, claims that TD Ameritrade marketed Yield Plus as "just like a money market" product—when, in fact it was not.

TD Ameritrade has offered little comment, except to say through a spokesperson that it planned to affect a vigorous defense of its company, and its actions.

It was reported that federal authorities needed to intercede and prop up the Reserve's Primary Fund after shares of the Fund fell below $1. To add to those woes, the Primary Fund's investment in Lehman Brothers Holding Inc. was erased after the giant financial entity declared bankruptcy in September.

Losses incurred by investors are thought to have the potential to hit the double-digits. That, according to those close to the lawsuit, is significant. A loss of 5 percent was described as 'meaningful,' so a loss over and above that level is most certainly actionable.

It was previously reported that Reserve Fund had a $785 million stake in Lehman Brothers, funds that literally disappeared into thin air after the firm declared bankruptcy. By September 15th, investors with Primary Fund had filed $41 billion worth of redemption requests, seriously undermining the Fund's $64 billion value.

The loss from the troubled Lehman Brothers notwithstanding, the fact that The Reserve sold investors on Yield Plus under allegedly false pretenses and undertook investments carrying a high risk than investors were led to believe, lay at the centre of the issue.

It didn't help that funds advanced by the Fed to prop up The Reserve's Primary Fund in order to provide some insurance, and inject some stability in the market, did not flow to Yield Plus. As a result, investors in Yield Plus did not benefit from the federal funds. The allegation that Yield Plus was marketed akin to a money market fund, only adds fuel to the rising fire.

Even prudent investors have suffered stock market losses in the midst of one of the worst economic crisis in the nation's history. With the gradual disappearance of traditional company pension plans, and given the migration between careers that is more the norm in 2009 than staying with the same company for an entire career, more and more Americans are relying on stocks and securities to augment their retirement nest egg.

A contracting market is bad enough. But alleged securities fraud, committed on the backs of trusting investors, is simply unforgiveable and most certainly actionable.

If you have suffered stock market losses and smell a rat that could lead to securities fraud, consult a stocks and securities lawyer.