National Investment Fraud Lawyers

¿Perdió en bonos y fondos de Puerto Rico?

Structured Product Lawyers

Did your stockbroker push you to purchase structured products that ended up costing you your hard-earned investment? Do you suspect that these losses were the result of dishonesty or fraud? If so, contact the structured product investment fraud lawyers of Erez Law for help today.

Financial advisors often encourage you to believe in them, while focusing on building relationships and establishing a foundation of trust to conduct business. Unfortunately, there are brokers who use the broker-investor relationship to satisfy their own agendas. Brokers and brokerage firms can claim they act in your best interest, but they can also convince you to buy investments and securities with incomplete or misleading information, or unsecured investments, so they can benefit in the long run. Don’t let the actions of a dishonest broker or brokerage firm cost you your hard-earned money. Contact the investment fraud attorneys at Erez Law toll-free at (888) 840-1571 today.

What are Structured Products?

Structured products are notes that link to other assets, such as a stock, a derivative, a bunch of securities, which are also linked to other assets. These products are available to investors that want to earn a high yield that they would not get from a traditional investment, such as a bond. Typically, these types of investors are retired people living on a fixed income.

In the past, structured products were only sold to savvy investors and institutions, since the negotiated transactions were designed to meet their specific needs. Because of their components, these financial products were too complex for regular investors and brokers to grasp. Structured products are usually overpriced, but only a sophisticated investor could discover that fact.

In recent years, brokerage firms have been pushing the sales of structured products to investors, because they pay out higher commissions. Billions of these structured products have been sold in the last several years to senior citizens who want to earn more interest income while protecting their investment principal.

Unfortunately, structured products are like an IOU from brokers and issuers that have found a new way to take money from investors. These types of products are marketed as being low risk and high yield. However, the promises made to investors that purchase structured products are overinflated. For many retirees and people who are looking for more than just investing in CDs or low-interest money market accounts, the appeal of this type of investment is enticing.

Types of Structured Products

Some types of structured products include the following:

  • Income Products-  Income products are investments that are linked to the market and add an enhanced level of income.
  • Growth Products- Growth products are market-linked investments that offer a return of growth and initial capital when the plan matures.
  • Auto-calls – These are structured products that mature prior to the maturity date scheduled but only if some pre-determined market conditions are met.
  • Structured deposit plans – These products are fixed term cash deposits that are similar to fixed-rate bonds. There is a variable return linked to the performance of underlying assets instead of paying a fixed rate.

What Are the Risks Associated with Structured Products?

Since structured products are high risk and hard to comprehend, they have been the subject of regulatory notices by from the Securities and Exchange Commission (SEC) as well as the Financial Industry Regulatory Authority (FINRA). FINRA defines the risks of investing in structured products in the following statement:

“Structured products in general do not represent ownership of any portfolio of assets but rather are promises to pay made by the product issuers. Structured notes with principal protection typically reflect the combination of a zero-coupon bond, which pays no interest until the bond matures, with an option or other derivative product whose payoff is linked to an underlying asset, index or benchmark. The underlying asset, index or benchmark can vary widely from commonly cited market benchmarks to foreign equity indices, currencies, commodities, spreads between interest rates or “hybrid” baskets of various asset types.”

Even though structured products may offer a “principal protection” guarantee, the risk of losing principal on these investments is real. For example, the “100% principal protection” notes issued by Lehman Brothers ended up losing much of their value when Lehman filed bankruptcy due to the fact the notes were unsecured by Lehman.

Sadly, the lessons learned about complex financial products during the financial crisis in 2008 seem to have had not much of an effect. A new wave of investment products has entered the market in the past decade and into consumers’ investment portfolios.

The names of these products may indicate some form of guaranteed return of the principal, but such a guarantee does not exist. The issuer of these products may not be trustworthy, creditworthy, or file for bankruptcy. As a result, an investor could lose most of their money. Since structured products offer only a partial protection of the principal, even if the assets are attached to a creditworthy issuer, the principal still is lost.

These types of products also contain higher than normal liquidity risk. The note may not be able to be redeemed before the maturity date since the underlying assets are not able to be exchanged or the issuer refuses the transaction. The note’s illiquidity could result in a huge diminished sale price in comparison to the initial purchase price, even if a secondary market for the product is available.

In addition, structured products are so ambiguous that some brokers who sell them do not completely understand them. The broker or advisor cannot accurately explain how they work or how they are valued. Some of these investments require an advanced degree in finance to fathom.

It’s not the responsibility of investors to fully understand structured products contained in their investment portfolios. Your financial advisor or brokerage firm must understand the product they are selling and ensure there is a match between you and the investments you wish to purchase.

How Can I Protect Myself Against Structured Product Fraud?

If you have not purchased a structured product, here is what you need to look for:

  • Structured products contain risky derivatives without a guarantee of income.
  • They have high fees and are mainly profitable for brokers and banks.
  • They are primarily marketed and sold to retirees and people who can’t afford major losses.
  • Structured products are not guaranteed and cannot be used if you need funds quickly to pay bills, need money for an emergency, or if you can’t afford a loss of principal.

It is also important to note that these types of products are usually sold by large brokerage firms with trusted names in the business.

What to Do If You are a Victim of Structured Product Fraud

There are two types of issues with structured products that lead to enormous financial losses, including:

  • The products were not structured properly and did not offer the guarantee of safety or the investment return promised; and
  • The degree of risk was misrepresented to investors, who now face a huge risk of loss to their initial investment because of exposure to the subprime mortgage market.

Many investors lose their retirement savings and other assets without realizing they dealt with a bad broker. Losses can stem from broker misconduct and negligence, not to the rise and fall of the market.

You may have worked for years to acquire retirement investments, accumulate wealth, create a sense of financial security or to leave behind a legacy for family members. A dishonest brokerage firm can wipe out your savings with bad recommendations or fraudulent actions. You may have sustained losses because of the incompetence of a brokerage firm or a financial advisor that acted intentionally to mislead you.

Brokerage firms and financial advisors (either by negligence or fraud) who have failed to follow industry standards can be held responsible for a loss on part of investors. You need to hire a law firm that represents clients that need to recover investment losses when caused by wrongful conduct or fraudulent stock market losses.

Experienced Structured Products Litigation Lawyers

When broker misconduct or fraud results in major financial losses, you need a team of high-quality attorneys to rely on for legal representation. With over 20 years of experience, Erez Law has the manpower and infrastructure that other litigation firms do not have. Our firm has a 99% success rate in litigating cases and have recovered over $150 Million in settlements for clients.

Erez Law represents a wide variety of investors including individuals, retirees, pension plans, trusts, partnerships, and wealthy, high net worth individuals. Our team of licensed attorneys represents people who have sustained significant structured product losses due to bad financial decisions brought on by brokerage firms or financial advisors. Our firm law firm represents clients through the United States, including Puerto Rico, as well as throughout Latin America.

As a highly experienced securities fraud law firm, our attorneys will fully investigate your claim to determine if you have a case. We will help investigate if your brokerage firm or your financial advisors committed fraud or were negligent in handling your investments.

If you or someone you know has suffered a significant financial loss due to investing in structured products, please contact our experienced team of securities litigation attorneys at Erez Law to recover your investments. Contact us for a free consultation toll-free at (888) 840-1571 or by filling out our contact form for help today

Related Articles:

Erez Law Files Claim Against Former Broker Alan Applebaum