The sale of structured investment products has been on the rise in recent years. Now, with the fallout of the market, many investors are finding that their allegedly safe investments are not as safe as they were brought to believe. Small investors and unsophisticated investors are losing hundreds of thousands of dollars — often at the eve of their retirement.
While it is not always possible to recover investment losses through a lawsuit, if your stock broker or investment advisor acted in a negligent manner, you may have a claim to recover losses. San Francisco securities law attorney Jeffrey A. Feldman provides clients with sound legal advice and representation in California and nationwide. He has helped investors recover significant losses in investment misconduct claims since 1991.
When So-Called Safe Investments Turn Sour…
Structured products are a type of investment that package different types of securities together. Structured products are often debt instruments tied to other investments such as stock indexes or currency exchanges. As a result, the investor can theoretically gain a portion of the benefits when the underlying investment rises. Most structured products are marketed as safe products that are protected from steep falls in the market — when in reality, they may offer very little protection.
Reverse Convertible Notes
Reverse convertible notes are a common type of structured product. Reverse convertible notes can be tied to a particular stock or group of stocks — which enables the investor to gain significantly as long as the underlying stock(s) does well. However, if the stock price falls significantly and stays there, the investor is exposed to the brunt of losses caused by that steep fall. In addition, the principle investment itself is not protected from fluctuations in the market. Currently, some of the worst performing reverse convertible notes were issued by Lehman Brothers, Citigroup, JP Morgan Chase, Golden Sachs, Merrill Lynch, and other troubled financial institutions.
Principal Protected Notes
Principal protected notes, as the name implies, are marketed to offer protection of the principal investment if the market falls. These notes yield a benefit to the investor when the underlying investment does well. Unfortunately, some investors are given the impression that no matter what, they will at least recover their initial investment when the note matures. This protection is actually dependant on the issuer’s (the company selling the structured product) credit and ability to pay its obligations upon maturity of the note. If the issuer goes bankrupt or has other financial troubles, the investor is essentially in line with all the other creditors trying to recover from the company. Liquidity, or the lack of it, is a big issue for structured products and that is often not explained to investors. This is currently the case for investors holding principal protected notes issued by Lehman Brothers.
Additionally, investors who attempt to sell the principal protected note prior to maturity will likely be faced with selling the note for a significantly reduced price. In the case of principal protected notes issued by Lehman Brothers, investors are finding that the notes are worth literally pennies on the dollar.
Do You Have A Claim Against Your Broker?
Suffering the pitfalls of a structured investment product issued by Lehman Brothers, Morgan Stanley, or other firm? Whether the structured product was sold as a safe bond, as a CD, or as a fixed income fund, it is likely that your broker misrepresented the benefits and risks of the investment.
Brokers have a duty to recommend suitable investments to clients AND to provide thorough explanation of the risks. If broker negligence or misconduct was involved, you may have a claim for recovery.