Investment Fraud Lawyer Blog

Investors should use extreme caution before investing in alternative investments. Alternative investments have become the popular “investment du jour" but these investments are fraught with risks. Simply stated, alternative investments are not the panacea that so-called experts represent them to be. For the reasons discussed below, investors need to be very skeptical of any recommendation encouraging them to invest in alternative investments.

Continue reading "Most Alternative Investments Carry Huge Risks" »

The risks are increasing for investors in principal protected notes, reverse convertibles and other structured products associated with Bank of America, Citigroup and Wells Fargo. Moody’s recently announced that it has downgraded the debt of those financial institutions. One reason given: the U.S. government is unlikely to bail them out again. “It is more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute,” said Moody’s.

Continue reading "Risks Increase for Structured Products Involving Bank of America, Citigroup and Wells Fargo" »

Many registered investment advisors and brokerage firms have increased their use of alternative investments for clients, many of whom are retired and lack the knowledge and sophistication to understand the complex investments, according to Liz Skinner’s InvestmentNews article entitled “Clients clamoring for alternative investments and advisers obliging.” But are alternative investments suitable for most investors? Similarly, are most investors provided with balanced disclosures of the risks that they are taking when they invest in alternative investments? Unfortunately, the answer to both questions appears to be no.

Continue reading "Alternative Investments Are Very Complex and Involve Significant Risks" »

Wall Street is aggressively selling so-called structured notes as a “safe” way to earn increased returns without increased risk. The appeal of such a pitch is obvious in these times of low interest rates and stomach-churning stock market volatility. Structured notes are gaining in popularity. Retail sales of structured notes increased by 46% in 2010 to a record $49.4 billion, according to Bloomberg, and are expected to be up again sharply in 2011. But beware, says Fortune magazine contributor Janice Revell (“Beware of Wall Street’s latest ‘safe’ investment,” CNNMoney), there is increased risk and the increased returns are illusory.

Continue reading "Investors Should Pass on Reverse Convertibles and Other Structured Products" »

Lehman Brothers is filing arbitration claims to recover recruitment and retention bonuses paid to brokers based on the premise that they are loans that have to be repaid if the broker’s employment was terminated for any reason. So far, Lehman has been successful as arbitration panels have awarded Lehman clawbacks of $2.2 million against one former broker and $800,000 against another, according to Joseph Checkler’s and Suzanne Barlyn’s Wall Street Journal article entitled “Lehman Pursues Former Brokers' Bonuses.“

Continue reading "Lehman Sues Brokers to Recoup Bonuses - Confirms that Consummate Corporate Arrogance Knows No Bounds" »

The current free fall in the stock market is likely to activated the ticking time bombs that are hidden away in some investors’ portfolios. These time bombs are embedded in a type of structured product called Reverse Convertible Notes or Reverse Exchangeable Notes. The problem has to do with the way these products are structured.

Continue reading "Reverse Convertible Securities More Likely to Become Toxic as Market Swoons" »

On July 27, 2011, the Staff of the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations published a report entitled “Staff Summary Report on Issues Identified in Examinations of Certain Structured Securities Products Sold to Retail Investors.” This report was based on the Staff’s review of eleven broker dealers that sell various structured securities: three large firms affiliated with bank holding companies that are issuers structured securities, on wholesale seller of structured securities issued by third parties, and seven smaller retail firms that also sell structured securities issued by third parties.

Continue reading "SEC Report Reveals Serious Abuses in the Sale of Structured Securities" »

The Financial Industry Regulatory Authority (FINRA) has issued an investor alert warning against chasing yield with structured products, junk bonds and floating-rate bank-loan funds. The alert was prompted by "significant recent inflows" into high-yield products. Investors may find enhanced yields attractive in the current market environment of low yields on conventional fixed-income investments and higher stock market volatility.

Continue reading "FINRA Warns Investors about Structured Products and Other Non-Conventional Securities" »

Investors in today’s markets, particularly seniors, are caught between extremely low interest rates and the risk of pursuing higher returns they want or need. Brokerage firms are capitalizing on that dilemma by selling structured products as a way to earn above-market returns purportedly without market risk. But as Robert Powel, editor of MarketWatch’s Retirement Weekly, points out in his article entitled “Investors warned about risky structured products,” structured product sellers routinely overstate the potential upside and understate the potential downside of these investments. The net result has been the rampant destruction of investors’ wealth.

Continue reading "What are Structured Products and Why are They so Dangerous?" »

In one of the largest dollar awards to date in a Lehman note case against UBS Financial Services Inc., a Financial Industry Regulatory Authority (FINRA) arbitration panel “walloped” UBS, ordering it to pay former Philadelphia 76ers President Pat Croce more than $2 million for losses in so-called “100% Principal Protected” Lehman notes that were sold to him weeks before Lehman’s September 15, 2008 bankruptcy filing. See Samuel Howard’s Law360 article entitled “UBS Told To Pay 76ers Prez $2M Over Lehman Notes.”

Continue reading "Improper Sales of '100% Principal Protected Notes' Wallop UBS Again" »

Retail investors in structured products that were sold as safe and secure investments have lost at least $113 billion, according to a report by the nonpartisan policy center Demos and The Nation Institute. "In my three decades of Wall Street experience, I have not seen any other product as absurdly destructive as retail investments linked to structured products," securities arbitration consultant Louis Straney wrote in the report.

Continue reading "Experts Conclude that Structured Products are 'Absurdly Destructive'" »

The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) continue to warn that the so-called “principal protection” feature of structured notes is misleading, according to an InvestmentNews article by Liz Skinner entitled “Principal-protected notes don’t always protect principal, regulators warn.”

Continue reading "When 'Principal Protected' Doesn't Really Mean an Investor's Principal is Protected" »

Simply stated, senior investors (in fact, all investors) should be very leery of high-risk structured products. Author John Wasik, in conjunction with Demos and The Nation Institute, has published a white paper entitled “How Safe Are Your Savings? How Complex Derivative Products Imperil Seniors’ Retirement Security.” The paper’s focus is on structured products and how they are mis-marketed to seniors, the group most in need of safe and secure income. The paper is reportedly the result of more than a year of research involving interviews with investors, state securities regulators, investors’ attorneys and officials with the Securities and Exchange Commission (SEC).

Continue reading "Study: Structured Products Pose Huge Risks to Investors' Portfolios" »

While financial advisers are selling the daylights out of high-yield structured products to investors who complain about low interest rates, the Financial Industry Regulatory Authority (FINRA) is warning them of the perils of such securities, according to Bruce Kelly’s InvestmentNews article entitled “Ketchum warns that FINRA is focusing on ‘hot’ investment.”

Continue reading "Are FINRA's Threatened Enforcement Actions on Structured Products Fact or Window Dressing?" »

FINRA CEO Richard Ketchum recently stated that structured products are “areas of concern” for the Financial Industry Regulatory Authority (“FINRA”), according to a Bloomberg article by Jesse Hamilton and Alexis Leondis entitled “Finra’s Ketchum Says Structured Products Are ‘Areas of Concern.’” If FINRA is concerned, it better act fast. “Sales of structured products rose 46 percent last year to a record $49.5 billion,” according to the article, citing data compiled by Bloomberg.

Continue reading "Attention Investors - Beware of Structured Products" »

On Monday, April 11, 2011, the Financial Industry Regulatory Authority (FINRA) announced that UBS had accepted and consented to a settlement deal in which UBS would pay a fine of $2.5 million and restitution in the amount of $8.25 million to certain investors for its misconduct regarding Lehman Brothers 100% Principal-Protection Notes sold by UBS. Notwithstanding these sanctions, many investor attorneys believe it falls short of dealing with the real problems.

Continue reading "Was FINRA's Recent Settlement with UBS Concerning Lehman 100% Principal Protected Notes a "Whitewash?"" »

The Spanish bank, Banco Santander SA, agreed to pay $2 million to resolve charges that its Puerto Rico-based brokerage improperly sold a group of structured products known as reverse convertibles to retail customers, including the elderly. (“Sale of reverse convertibles dings another B-D,” InvestmentNews, April 12, 2011).

Continue reading "Victims of Reverse Convertibles Abuses Span the Globe" »

The Financial Industry Regulatory Authority (FINRA) announced that it has fined UBS Financial Services, Inc., $2.5 million, and required UBS to pay $8.25 million in restitution to certain investors for its misconduct regarding Lehman Brothers 100% Principal-Protection Notes (PPNs) sold by UBS. UBS’s misconduct includes misleading investors about: (1) the principal protection feature, (2) the risk that they could lose their entire investment, (3) the worsening credit risk of Lehman, (4) inadequate supervisory procedures, and (5) failure to educate its sales force about the risks and how the PPNs work.

Continue reading "Regulators Sanction UBS for Improper Sales of Lehman Principal Protected Notes (a/k/a Structured Notes)" »

Structured products are little more than IOUs from issuers and brokers who have come up with complex ways to take investors’ money. They are marketed as “low risk and high yield” – an oxymoron when dealing with stocks and the market. But to many older, fixed income investors and those tired of low interest money market or CD offerings, the pitch sounds enticing. The promise of double-digit returns in one to three years has actually COST investors over $164 billion over the last two years! John F. Wasik in an article for AARP Magazine took a good hard look at structured products and how they rarely deliver on the hype.

Continue reading "Structured Products Aren't What You Think They Are" »

John F. Wasik’s article in the March | April 2011 edition of AARP Magazine, entitled “The Time Bomb in Your Nest Egg,” is a “must read” as it focuses on a hot group of investment products called Structured Products, which are being marketed to conservative fixed income investors seeking better yields. Sales are rising, and they are dangerous. As Mr. Wasik states at the outset, “They’re sold as supersafe investments. They promise higher returns than any CD. And they’re not to be trusted.”

Continue reading "AARP Issues Warnings about Principal Protected Notes and Other Structured Product Investments" »