Erez Law is currently investigating Centaurus Financial, Inc. broker David Crane (CRD# 1334510) regarding unsuitable structured product investments. Crane has been registered with Centaurus Financial, Inc. in Dacula, Georgia since December 2018. Previously, Crane was registered with Questar Capital Corporation in Dacula, Georgia from 2006 to 2018.
According to public records, Centaurus Financial, Inc. is alleged to have bad sales practices that related to long-term, illiquid securities, structured notes, and variable rate CDs. In many instances, these investments are sold to investors as bonds or bond-like investment opportunities. Unfortunately, this is not the case. These investments are not bonds or bond-like. In fact, they are more complex structured products.
Structured products are complex securities derived from or based on a single security or index, basket of securities or indices, a debt issuance, a commodity and/or a foreign currency. Most structured products pay an interest or coupon rate based on certain defined parameters. Structured products typically consist of a note and a derivative, most often an option. While the note pays interest, the derivative defines the payment at maturity. Despite the fact that structured products most often involve options, they are typically marketed as debt securities. Structured products can offer a form of principal protection and frequently cap the upside participation in the underlying investment. Additionally, structured products do not trade on an exchange and are generally not liquid investments. Structured products are issued by brokerage firms and are registered with the SEC.
Brokers such as Crane recommended their retail clients invest in a variety of structured products, which caused investors to suffer massive and unacceptable losses, including but not limited to the following:
- Adjustable-rate Market Notes
- BNP PARIBAS Structured Notes
- Callable CMS Spread Notes
- Callable Interest Rate Spread CDs
- Callable Quarterly CMS Spread-Linked Notes
- Callable Variable Rate Range Accrual CDs
- Credit Suisse Structured Notes
- HSBC Callable Leveraged Steepener Notes
- JP Morgan Chase Return Optimization Notes
- JP Morgan Target Term Securities
- Leverage Callable CMS Curve Linked Notes
- Market-Linked CDs
- Merrill Lynch Strategic Return Notes
- Senior Callable CMS Steepener Notes
- Spread-linked Notes
- Steepener Notes
- Structured CDs
- Structured Notes
A steepener is a complex financial instrument intended for sophisticated investors. It is a bet on the interest rate curve, predicting that it will steepen and not remain flat. Steepeners are not freely traded, are illiquid in many instances, and are often callable. Many investors have to sell their investments at significant losses. Steepeners are a type of interest rate swap, where one party agrees to pay the other a fixed rate in exchange for a floating rate that is derived from the difference between long and short term rates. Investors who invested in steepeners at the recommendations of their broker may have suffered serious financial losses. It is alleged that brokers across the country who recommended steepeners to their retail clients did not adequately explain how these investments work or the potential risks of these investments, some at 50% or greater losses to their investment. In fact, some investors reported that they thought they were buying bonds, when in fact they were investing in steepeners. In this complex leveraged steepener investment strategy, an investor would buy a short-term treasury as well as short a long-term treasury at the same time.
Structured CDs are issued by banks and are not registered with the SEC. Given the complexity of these structured products and their similarities to options, securities regulators have required brokerage firms to specially approve clients for structured products.
Many investors who bet on these complex structured products on the recommendation of their brokers have suffered catastrophic losses to their principal investments. Brokers also may have over-concentrated their accounts in these products, which only served to further increase the risks to the investors. These types of structured products generally had long maturities such as 20 years. Given that the securities are not listed on an exchange and therefore highly illiquid, investors would have to sell the Structured Products at significant discounts if they sold prior to maturity.
It is alleged that some brokers recommended these investments and sold them improperly to elderly clients or retirees along with other illiquid or unsuitable securities. In these instances, the investors believed they were purchasing bonds or CDs. These unsophisticated investors did not understand the complex nature of the investments, and their brokers did not disclose these complexities.
Additionally, many of the structured products paid an attractive teaser interest rate for one or two years with no guarantee of additional interest payments.
Centaurus Financial is responsible for supervising the activities of financial advisors such as Crane and therefore the firm may be liable to customers for their investment losses due to these unsuitable investment recommendations.
Crane has been the subject of one settled customer complaint from 2004 regarding negligent financial & investment advice, misrepresentations, and breech of fiduciary duty in regards to the purchase of a variable annuity & variable life insurance.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Centaurus Financial, Inc. may be liable for investment or other losses suffered by Crane’s customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.