April 12, 2011 Comments (1) Blog, Securities Fraud

Recovery of Reverse Convertible Note Losses

(Last Updated On: July 17, 2015)

Have you lost money in a reverse convertible note?  The White Law Group may be able to help.  The firm is currently investigating whether brokerage firm’s improperly sold reverse convertible notes to investors without disclosing the risks of the complex products.

Reverse convertibles, generally marketed to individuals, are short-term bonds that convert into stock if a company’s share price plummets. They offer high interest rates, with notes paying 13 percent on average last year, according to data compiled by Bloomberg. Banks sold $6.76 billion of the securities to U.S. investors last year, the data show.

Several firms have been fined by Finra as a result of their sales of these products.  Banco Santander SA, Spain’s largest bank, was ordered to pay $2 million to resolve U.S. regulatory claims that its Puerto Rico-based brokerage Santander Securities improperly sold risky structured financial products to retail customers including the elderly.

According to Finra’s investigation, Santander Securities, which has reimbursed customers for more than $7 million in losses on so-called reverse convertible notes, failed to properly train brokers as sales grew in 2007 and 2008.

Finra also fined two brokerages last year over the products. Ferris, Baker Watts LLC, which was acquired by Royal Bank of Canada in 2008, was ordered to pay $690,000 to resolve Finra’s claims that it failed to supervise reverse-convertible sales. H&R Block Financial Advisors Inc., acquired by Ameriprise Financial Inc. in 2008, was fined $200,000 for a lack of supervisory systems. Neither brokerage admitted wrongdoing.

In some instances, brokers recommended that customers use funds borrowed from the firm’s banking affiliate to purchase the securities, claiming it would enable them to profit on the interest-rate spread between the instrument and the loan, Finra said. Those recommendations substantially increased the clients’ risk, and some people who lost money then owed additional funds to the bank when the notes lost value, the regulator said.

If you would like to speak to a securities attorney regarding your purchase of a reverse convertible note, contact The White Law Group at 312-238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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