Meyer Wilson is currently investigating investment losses resulting from
the sale of reverse convertible bonds, reverse convertible notes, and
structured products and structured notes that may have been inappropriately recommended to
"Reverse converts" were likely marketed to unsophisticated investors
as a good alternative to traditional equity and
fixed income investments since they pay interest or are usually tied in some way to
an underlying "safe" stock.
These products are often described by a broker as being like a bond, a
typically safer short-term investment, but with promises of large interest
payments. However, reverse convertibles are far more complex than a bond
and often integrate many confusing options.
But brokers frequently don't fully understand the complexities or may
specifically understate the risks associated with this kind of investment
choosing instead to falsely focus on the positives of this equity linked
product. Frequently touted advantages include high risk-adjusted returns,
rare access to unique areas of investment and the general protection of
one's principal investment.
The many drawbacks of
reverse convertible investments include:
- Overly Complex Products - Often the complexity makes the investment too
difficult to fully explain to investors. Many companies used a bevy of
their own acronyms to explain the product;
- Excessive Fees and Commission - The expense can often top 3% in underwriting
fees and broker commissions;
- Tax Inefficiencies;
- Inadequately Disclosed Fees and Costs; and
- The Highly Illiquid Nature of the Product.
This investment loss investigation comes just days after Apple Inc.'s
stock sharply declined, with many such investments, tied to Apple's
stock performance losing large amounts of money for investors. The largest
security linked to Apple was sold by JPMorgan Chase & Co. for $65.5
million of one-year auto-callable notes on Aug. 30, 2012.
People who purchased Apple-linked investment products may be in for an
unpleasant reality. As the note matures, investors will end up as owners
of Apple shares worth much less than the originally invested amount --
putting the investor at an unfair large financial loss.
This situation became so prevalent that FINRA recently responded with an
official regulatory notice for reverse exchangeable securities (reverse
convertibles) stating, "Firms that sell reverse convertibles are
reminded to ensure that their promotional materials or communications
to the public regarding these products are fair and balanced, and do not
understate the risks associated with them. Firms are also reminded to
ensure that their registered representatives understand the risks, terms
and costs associated with these products, and that they perform an adequate
suitability analysis before recommending them to any customer."
Predictions put personal investment losses due to reverse convertible investments
at 25% or more for what was once touted as a safe "bond-like"
Many investors who placed their savings in similar investments face the
same potential fate as those who invested in Apple. Look to see a swarm
of FINRA arbitration claims and lawsuits in the near future against major
brokerage firms, banks and agents.
It's estimated that the liability of the financial product providers
offering reverse convertibles could exceed $75 billion.
The biggest questions left on the table are; "Who's offering these
types of investments?" and "How do I know if I should be worried
about reverse convertible notes?"
- You might find these or similar terms on your statements: yield optimization
notes, auto-callable optimization securities, PLUS, Buffered Plus, Buffered
SuperTrack and ELKS. The tricky aspect of these terms like these is that
the names themselves don't call out to an investor that it is, in
fact, a reverse convertible product.
Most major brokerage firms and banks sold,
and continue to sell, structured products and reverse convertibles. Prominent institutions
include, but are not limited to: Citigroup Inc., Barclays PLC, and ABN
Amro Holding N.V. / RBS Holdings N.V.
- High-profile linked stocks include Pfizer, Yahoo Inc., Intel and Scand
- Citigroup debuted reverse convertible note versions linked to Celgene Corp,
Johnson and Johnson, and Apple Inc.
- Morgan Stanley Smith Barney alone (Revco notes) peddled Morgan Stanley
Reverse Convertible Bonds on AT&T, Foster Wheeler (FWLT), The Goldman
Sachs Group (GS), AMEX Gold Bugs, Citigroup (C), Consol Energy (CNX),
Range Resources Corporation (RRC), Freeport-McMoRan Copper & Gold,
Inc. (FCX), Norfolk Southern Corp., Freeport-McMoRan Copper & Gold,
Inc.(FCX), Whole Foods Market Inc. (WFMI), Toll Brothers, Western Union
(WU), Ebay, Deere & Company (DE), Valero Energy Group (VLO), Baker
Hughes Incorporated (BHI), Monsanto Company (MON), Spiders (SPDR), Southern
Copper Corporation (PCU), Sunoco (Sun), Amylin Pharmaceuticals, Inc.(AMLN),
National Semiconductor (NSM), Baker Hughes Incorporated (BHI), Southern
Copper Corporation (PCU), Arch Coal, Inc. (ACI), Joy Global Inc. (JOYG)
and Texas Instruments (TI), Amazon (AMZN), Apple (AAPL), eBay Inc. (EBAY),
Lehman Brothers (LEH)
If you have suffered financial losses resulting from a reverse convertible
investment or other equity structured products, reach the Meyer Wilson
investment fraud attorneys via the online form or by calling for a confidential,