A structured note or product refers to a retail investment designed to meet specific financial objectives, such as growth, income, or reduced risk. Structured notes combine traditional securities, such as corporate bonds, with a derivative component. Unlike mutual funds or ETFs, structured notes do not hold a portfolio of securities. Instead, the note’s issuer pays a return based on a formula incorporating the performance of one or more reference assets.
Structured notes may provide principal protection, which offers a full or partial return of principal at maturity regardless of how the underlying reference assets perform. However, many do not, which means that investors can lose their entire investment depending on the performance of the reference assets. Notes with principal protection may also include a call option, allowing the issuer to redeem the note before maturity, which can also result in losses for investors.
The complexities of structured notes mean these products do not suit the financial needs and objectives of many investors. As such, brokers and investment advisors should not push their clients to invest in structured notes without warning them of their hidden risks. Investors who suffered losses in unsuitable recommendations for structured notes may be able to file a FINRA arbitration case to demand compensation for their investment losses.
If you have suffered significant losses due to structured notes, contact Erez Law PLLC today for a confidential case evaluation with an attorney to discuss the details of your case and learn whether you may have an arbitration claim. Our firm has over 35 years of experience representing clients in FINRA arbitrations. We have successfully handled over 1,000 cases, recovering more than $320 million for our clients.
When Structured Notes Lead to FINRA Arbitration
Retail investors’ investments in structured notes can lead to FINRA arbitration under various circumstances. Some of the most common scenarios leading to FINRA arbitration in structured notes cases include the following:
- Overconcentration: Brokerage firms may be subject to liability in FINRA arbitration when their brokers place an unreasonable portion of a client’s portfolio into structured notes. Doing so overexposes the client to the substantial risk and potential downsides of these investments, including the possible loss of the principal investment due to an early call option or poor performance of reference assets.
- Failure to recommend suitable investments: Clients may have FINRA arbitration claims against brokers or financial advisors who recommend and persuade them to invest in structured note products that do not align with their investment objectives. For example, a client interested chiefly in the protection of principal or income production likely would not be a suitable investor in structured notes. Brokers have a duty to perform due diligence on any recommended investments, including of the underlying asset.
- Misrepresentation: Advisors may engage in misconduct when they negligently or knowingly misrepresent details about a structured note product when pitching it to a client. For example, a broker or financial advisor may misrepresent the degree of principal protection offered by a specific product or claim guaranteed returns or income when the product does not have such a guarantee.
The following are common red flags that may indicate you have a claim:
- Your broker invested your money into structured notes without your knowledge or authorization.
- The structured note’s features do not fit with your risk tolerance or investment objectives.
- The note does not provide features or returns that your broker promised.
Why Legal Representation Is Crucial for FINRA Arbitration for Structured Notes
Experienced legal representation is critical as you go through the FINRA arbitration process. Brokerage and financial investment firms have significant financial resources and access to skilled legal counsel, so having a seasoned attorney in your corner can level the playing field. An experienced attorney can review your case to identify and build a tailored legal strategy by gathering critical evidence.
Our attorneys have successfully handled over 1,000 cases involving securities fraud, misrepresentations, breaches of contractual duty, and various violations of securities laws. We have the knowledge and resources to command results. If you suffered substantial losses due to a broker’s misconduct, contact our experienced attorneys today for a free and confidential consultation.
Eligibility for Filing a FINRA Arbitration Claim
Any party with a legal claim against a FINRA-registered broker or financial advisor may submit its claim to FINRA arbitration. Individual investors, retirees, or institutional investors can bring claims in FINRA arbitration. Under FINRA rules, you typically have six years to file an arbitration claim.
The FINRA Arbitration Process Explained
Claims against brokers and advisors are typically subject to arbitration under FINRA, the Financial Industry Regulatory Authority. FINRA arbitration begins when you file a statement of claim with FINRA, which describes your dispute, the parties involved, and the financial compensation you seek. After you submit your statement of claim and the brokerage firm submits an answer, you and the firm will select an arbitrator or panel of arbitrators by ranking preferred arbitrators on a randomly generated list.
Next, the arbitrator or panel will hold a prehearing conference to discuss procedural issues and schedule hearings. Before the arbitration hearing, you and your brokerage firm must exchange discovery and identify witnesses you plan to call at the hearing. Discovery is more limited in arbitration proceedings than in traditional litigation.
At the hearing, each party can present its case to the FINRA arbitration panel and cross-examine the opposing party’s witnesses. The arbitrator(s) may also ask questions of the witnesses. After the parties present closing arguments, the arbitrator(s) consider the evidence and issue an award in favor of one party or the other. If the arbitrator(s) rules in your favor, they will decide the amount of compensation the brokerage firm must pay you.
What Investors Must Prove in Arbitration
To recover compensation for financial losses from structured notes in a FINRA arbitration, a customer must prove several legal elements, including:
- The broker’s duty of care or contractual obligations: A client must establish the contractual obligations or fiduciary duties that their broker or advisor breached.
- The broker’s negligence or misconduct: The client must present evidence proving that the broker negligently, knowingly, or willfully led the client into an unsuitable investment. Brokerage firms are responsible for the misconduct of their individual brokers.
- Financial harm: Finally, the client must show that they suffered unexpected losses they otherwise would not have incurred but for their broker’s negligence or misconduct. For example, they may incur losses from a structured note they wouldn’t have invested in but for their broker’s advice or decisions.
Contact a Structured Product Arbitration Attorney Today
Have you lost money because of a bad investment you were advised to make in a structured note? If so, you may have the right to pursue accountability and compensation through FINRA arbitration. Contact Erez Law PLLC today for a free initial consultation with a structured product arbitration attorney to discuss your legal options for seeking financial relief from an unsuitable structured note investment.