Have you been the victim of non-cumulative preferred shares of stock fraud? If so, the experienced investment fraud attorneys of Erez Law are here to help. Non-cumulative stock is a class of preferred stock that loses the chance to accumulate dividends in arrears or dividends that are missed during a current year and not paid out by the company. Those shareholders are also not entitled to collect on those missed dividends in future years.
If you believe that you have been the victim of investment fraud when it comes to preferred stock, don’t hesitate to seek qualified legal help. Contact the non-cumulative preferred shares of stock fraud lawyers of Erez Law by filling out a contact form, chatting with us live, or by calling us at (888) 840-1571 today.
How Dividends Work
Dividends are paid to shareholders as a benefit when the company performs well during any quarter. But, dividends are declared (a common term that means dividends will be paid to investors) only when the company decides to do so. Companies do not have to pay out dividends to shareholders. Either the Board of Directors or management team of the company decides whether they pay out dividends which is usually based on stellar performance or company earnings. Dividend schedules vary depending on the company and can be anywhere from monthly to quarterly. The most common schedule is for dividends to be paid quarterly.
Non-Cumulative vs. Cumulative Preferred Stock
Preferred stock is a type of stock that allows shareholders to be paid a dividend when declared by a high-performing company. When a company declares dividends, preferred stock shareholders receive the dividend before other shareholders. It is important to note that preferred stock shareholders are not guaranteed to be paid a dividend when one is not declared. Preferred stock shareholders also have no voting rights or privileges.
Cumulative preferred stock shareholders are treated differently than other preferred stock investors. They have the right to receive a dividend whether one is declared or not. This means that when dividends are in arrears (i.e., dividends are not paid out by the company), they continue to accumulate until the dividend is declared.
Non-cumulative preferred shareholders are not entitled to the same benefits as cumulative preferred shareholders.
Let’s take a look at an example. During normal times, Company A issues a $0.25 quarterly dividend to its preferred shareholders. In the fourth quarter of this year, the management of the company and Board of Directors decides not to issue a dividend. They cite the company’s performance, an insufficient cash flow, and escalating operating expenses as the reason. If a shareholder holds non-cumulative stock, they are not entitled to receive this skipped dividend. The company can also not be held liable for not issuing the dividend. However, if a shareholder holds cumulative stock, they are entitled to the fourth quarter’s $0.25 dividend plus the dividend in the following quarter.
Why Companies Issue Non-Cumulative Preferred Stock
There are a few reasons why companies will issue non-cumulative preferred stock. These reasons can include the following:
- Shareholders receive special treatment: Non-cumulative shareholders own preferred shares of the stock, which means their dividends are paid first before common shareholders. Preferred shareholders like this advantage, and it makes the class of stock a more attractive choice to investors.
- No extra dividends are owed: Because these shares do not accumulate, the company does not have to worry about paying any missed dividends to shareholders. This means the company has more options with its cash flow and less of a need to raise capital for the company because of extra dividends being paid out to shareholders.
Know Your Rights with Investment Fraud
Non-cumulative preferred stock should always be purchased from a licensed broker. While brokers should provide you with all of the investment risks and disclosures about a stock before you invest, you must also do your due diligence. You should research the broker and the company before investing. There is very little you can do if a broker misrepresents the stock—your only choice would be to file a FINRA arbitration claim. You can prepare ahead of your claim by speaking with a skilled investment attorney from Erez Law. We will do everything in our power to make sure you get the best outcome possible.
If you feel that your broker didn’t advise you of all of your options and the risks involved before investing in non-cumulative preferred stock shares, the experienced legal team at Erez Law can help navigate the complex details of your case. Our years of investment experience combined with knowledge of securities litigation makes us the right attorneys to handle your case.
Whether you are the victim of preferred shares of stock fraud or have experienced other legal problems with your investment portfolio, we can help. Call the investment fraud lawyers of Erez Law at (888) 840-1571 to find out how we can help you with your non-cumulative stock fraud case.