Charles Schwab (Nasdaq: SCHW) can finally move on from its YieldPlus fiasco, but it didn't come cheap.

The discount broker will be forking over $119 million to settle state and federal lawsuits that accused the broker of misrepresenting the risks of its ill-fated YieldPlus (FUND: SWYSX) mutual fund. The settlement comes on top of the $235 million it agreed to pay last year to resolve a pair of class-action lawsuits.

The bond fund had no problem attracting income investors with its compelling objective of seeking "high current income with minimal changes in share price." Unfortunately, the pursuit of chunkier payouts found the fund overloaded in mortgage-backed securities just as that market was collapsing three years ago.

The fund's 1% dip in 2007 -- according to Morningstar -- was unsettling, but the 35% plunge in 2008 was the dagger. Investors bolted as the lawsuits began to pile up, exacerbating matters on the way to a nearly 11% slide in 2009. The fund bounced back with marginally positive results last year, but the depleted asset base means that few of the scorched investors are still around.

As far as scandalous dives, YieldPlus' plight may not compare to when iconic money market fund Reserve Primary broke the buck in 2008. Investors figured that money market investments were glued to a net asset value of $1, but the failure of Reserve Primary -- and the need for Legg Mason (NYSE: LM) and Bank of America (NYSE: BAC) to throw hundreds of millions if not billions to keep their funds there -- drew attention to the saving vehicle's risk until regulators stepped in to calm the worrywarts.

YieldPlus was always marketed as a bond fund with a fluctuating NAV. The rub came when it stretched the meaning of "minimal changes" when its investments fell apart.

The fallout hasn't been fatal to the Schwab brand. The discounter continues to grow. However, as discounters TD AMERITRADE (Nasdaq: AMTD) and E*TRADE (Nasdaq: ETFC) begin to match Schwab's push into branded funds and commission-free ETFs, they have to realize that their reputations are at stake.

If there's any surprise here it's that Schwab continues to run the fund. It would have been easier to merge the fund with a more successful alternative as a means to rub out its negative history. Schwab gets points for that, though I wouldn't touch the fund with your money.

In fact, I don't know why investors stuck around when the lawsuits first started mounting in early 2008. The fund had lost less than half of what it eventually gave up in 2008 at the time, and it was a given that a stampede of redemptions would hamper its near-term performance. You don't want to be the last person out of a burning movie theater, even if you hear that the end credits are a hoot.

Schwab appears to be nearing the end of paying the price for the fund's deceptive marketing. Hopefully, investors have learned their own lessons, too.

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Charles Schwab is a Motley Fool Stock Advisor pick. The Fool owns shares of Bank of America and Legg Mason. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz believes in self-service gasoline pumps and self-service stock brokerages. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.