May 12, 2015 Comments (0) Blog, Securities Fraud

Recovery of Bank of America Reverse Convertible Notes Losses

(Last Updated On: July 17, 2015)

Have you suffered losses investing in Bank of America Reverse Convertible Notes? If so, the securities attorneys of The White Law Group may be able to help you recover your losses in a FINRA arbitration claim against the brokerage firm that recommended the investment.

Reverse Convertible Notes (“RCNs”) are extremely complex investments that often involve terms, features and risks that can be difficult for individual investors and investment professionals alike to evaluate. In fact, in most cases the investor in an RCN bears all of the downside risk while the issuer of the note receives all of the potential upside.

RCNs are notes whose repayment of principal is linked to the lowest value of the reference security during the RCN’s term. If the reference security’s value drops below a “trigger” price during the RCN’s term, then the RCN will pay the lesser of its face value or the market value of the shares that could have been purchased with the RCN’s face value on the pricing date.  If the reference security’s value does not drop below the “trigger” price, then the RCN will pay its face value at maturity.

Essentially, in addition to taking on the credit risk of the issuer, the investor also takes on the price risk of the referenced security or securities. Meanwhile, the issuer has passed its risk on to the unsuspecting investor. Notably, the issuers of RCNs are generally large financial institutions, such as Bank of America, while the investor is typically an unsophisticated individual who is attracted by the high coupon rate and doesn’t understand the level of risk that comes with these highly complex structured investments.

Furthermore, the issuer charges an up-front fee to assemble and package the RCN’s components. The fee typically ranges from one percent to eight percent or more, and is usually described in the prospectus as “built-in costs” or “costs of hedging.”

The investor is also exposed to potential liquidity risk. The issuer is not required to maintain a secondary market, and, like most structured products, there may be no buyer if the investor needed to liquidate the RCN prior to maturity.

Altogether, RCNs are extremely complex, high-risk, and frequently illiquid investments that are difficult to understand and are not suitable for unsophisticated investors.

Brokerage firms that sell RCNs are required to evaluate whether they are suitable given the investor’s age, risk tolerance and investment objectives, net worth, and investment experience. Firms that make unsuitable recommendations can be held responsible for losses in a FINRA arbitration claim.

If you suffered losses investing in Bank of America Reverse Convertible Notes and would like a free consultation with a securities attorney, please call The White Law Group at 312-238-9650.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

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

The following is a list of some of the Bank of America Reverse Convertible Notes offered:

CUSIP Issuer Product Name
06051P653 Bank of America Coupon Bearing Notes linked to JPMorgan Chase & Co.
06051P661 Bank of America Coupon Bearing Notes linked to Halliburton Co.
06051R691 Bank of America Coupon Bearing Notes linked to Deere & Co.
06050R114 Bank of America Coupon Bearing Notes linked to Whole Foods Market, Inc.
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