If you have been the victim of fraud regarding your participating preferred shares of stock, Erez Law is here to make sure you get the justice you deserve. Investors have a variety of options and stock investment vehicles to choose from when building their portfolios. Preferred stock is often an attractive option for investors because of its potential for more lucrative returns. With preferred stock, there are various types available. Preferred stock can be offered as convertible preferred stock, cumulative preferred stock, non-cumulative preferred stock, and participating preferred stock. Companies generally issue the different types of preferred stock when they are looking to raise large amounts of capital.
Participating preferred stock allows shareholders to receive higher earnings in addition to regular dividends and preference during liquidation events. The guaranteed payment of the dividends and the potential for additional dividends are two reasons participating preferred stock is so attractive to investors.
Call an experienced preferred stock lawyer of Erez Law at (888) 840-1571 to discuss your rights and legal options if you were the victim of fraud regarding participating preferred stock.
How Participating Preferred Stocks Work
Participating preferred stocks are rare (but popular) among investors because of the potential for extra dividends. If the stock is preferred, you automatically receive a fixed dividend, and as a participating preferred stockholder, you can count on the additional dividends as well. Another reason they are popular is the way shareholders can participate. They can participate and receive additional dividends in two ways: earnings and liquidations.
- Earnings: Investors receive the regular dividend rate that preferred stock shareholders receive in addition to any other dividends above and beyond the normal dividend rate. These dividends are paid based on a predetermined condition set forth by the company.
- Liquidation: Participating preferred stockholders have preference during a company’s liquidation. In the event of a liquidation, shareholders are ranked higher than the liquidation value of the preferred stock and any additional dividends that are due to investors. They are also able to receive any additional value after the liquidation event. This is similar to how common stock shareholders receive post-liquidation value.
Participating preferred stocks are one of the many different types of preferred stocks that are available to investors. With participating preferred stock, shareholders are paid before common stockholders. In liquidations, however, they are paid after all of the company’s debt is cleared.
The Implications of Buying
When you are looking to purchase preferred stock, you should seek out an experienced, licensed broker who can tell you if the stock offers participating shares. The price to acquire shares might be higher than other stock options. The higher price is because of the likelihood that there will be higher-than-normal returns. However, the participation rights in a preferred stock directly relate to the cost of the common stock.
As an investor, you should look for options to purchase participating preferred stock when you believe a company’s earnings will be higher than normal or when the company is likely to be purchased by another company and sold for a higher price. These ways allow investors to take full advantage of participating preferred stock shares. This is also why this type of stock is so appealing to investors. While appealing, it is very rare because of its many features.
Participating Preferred Stock Fraud
When you want to purchase participating preferred stock, you need a knowledgeable broker, licensed by FINRA, to lead you through the stock-buying process. The broker’s role is to provide you with all of the investment-related documents to help you educate yourself about the stock, the company, and its past performance. Although this is useful information to have, you must remember that past performance is no indicator of future performance of a stock. However, all of this information doesn’t mean that you won’t face investment fraud from a broker who isn’t familiar with participating preferred stock and its advantages and dividend process.
Before purchasing any participating preferred stock, research the broker and their experience. The broker should make you aware of all investment risks as well as all information they know about a company. If the broker fails in their duty to make you aware of all investment risks, then you do have options. You will need a skilled lawyer to help you when you’re facing investment stock fraud; a lawyer who understands participating preferred stock and the implications of not being adequately informed by brokers. At Erez Law, we have seasoned and knowledgeable lawyers who have a wealth of securities knowledge and litigation experience in securities law.
If you believe that you were the victim of fraud regarding the purchase of participating preferred shares of stock, the experienced investment fraud lawyers at Erez Law can help. Contact a knowledgeable member of our team by calling (888) 840-1571, filling out a contact form, or chatting with us live to discuss your rights and legal options.