Attention Investors of AllianceBernstein LP and Sanford C. Berstein & Co.’s Option Advantage Strategy

AllianceBernstein LP

Erez Law is currently investigating AllianceBernstein LP and Sanford C. Berstein & Co. and its brokers who allegedly recommended their clients invest in its Option Advantage Strategy, a complex options strategy that seeks to provide “incremental return in a low yield environment.” The Option Advantage Strategy was promoted to investors between 2018 and October 2022.

It is alleged that brokers presented the options strategy as a low-risk and low-volatility investment that could earn investors between 1-2% annual return on assets already with the firm. It is alleged that the firms and their brokers misrepresented the investment and omitted material information when presenting the investments to their clients.

The options strategy was allegedly touted as a low-risk investment that utilizing margin to avoid having investors deposit additional funds (a cash-free investment strategy), thus giving the appearance of less risk for investors. However, instead the Option Advantage Strategy speculated on the direction of the markets through the purchase and later sale of call and put options available on the S&P 500. This became a risky investment that bet on the direction of the market indexes, which utilized the leverage of margin and was not meant for volatile markets. As a result of investing in this strategy, investors saw significant losses right from the start. Additionally, the firms charged additionall fees for management of these investment accounts.

Public records indicate that a couple recently filed a FINRA arbitration claim against the firms, alleging that their brokers recommended they invest in the complex options strategy. The couple sought incremental returns in a low-risk, low-yield environment. However, as a results of investing in this strategy, the couple suffered significant losses in their investment accounts. Regrettably for many investors, the firms did not test the strategy during times of volatility before recommended the Option Advantage Strategy to their clients. The couple allegedly lost nearly $500,000, which included broker fees and margin interest, investing in the Option Advantage Strategy.

In October 2022, in a letter to investors in the Option Advantage Strategy, AllianceBernstein LP and Sanford C. Berstein & Co. decided to close the investment. According to the letter, “The approach of the strategy was to capture the implied volatility embedded in option prices which is often at a premium due in part to investor behavioral biases. The approach behind the strategy is well researched and has produced solid results during periods of more normal levels of realized volatility.”

The letter continued, “Over the last few years, the volatility that ultimately drives the investment outcomes of the strategy has increased. After a period of relative calm in 2021, this higher volatility environment has become particularly pronounced in 2022, manifested by extreme swings in the S&P 500. Additionally, come of the behavioral biases that historically enhanced option premiums may have shifted.” The letter cited global volatility including a risk of recession, the war in Ukraine, interest rate increases, and inflation as reasons for recent uncertainty or volatility.

The letter stated that when the fund closes, the firms would maintain investors margin accounts at no interest for 12 months, at which time they would begin charging a preferential rate.

AllianceBernstein’s Option Advantage Strategy Investment Loss Options

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, AllianceBernstein LP and Sanford C. Berstein & Co. may be liable for investment or other losses suffered by its customers.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If you 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.

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