Recovery of Investment Losses in UBS ETRACS Exchange Traded Notes (ETNs)
Concerned about your investment in UBS ETRACS ETNs?
Have you suffered losses investing in a UBS ETRACS Exchange Traded Note (ETN) at the recommendation of your financial advisor? If so, The White Law Group may be able to help you recover your losses by filing a FINRA arbitration claim against the brokerage firm that sold you the investment.
COVID-19 global pandemic has caused devastating losses to securities markets. Unfortunately for investors, UBS ETRACS ETNs are down substantially in the past month. UBS has reportedly called mandatory redemptions of certain ETRACS and has frozen the trading of other ETRACS causing investors huge losses.
Exchange Traded Notes (Structured Notes Products)
Structured notes are securities issued by financial institutions such as UBS Financial Services, Morgan Stanley, Deutsche Bank, JP Morgan Chase, and RBC, whose returns are based on, among other things, equity indexes, a single equity security, a basket of securities.
The return on an investment in a structured note is “linked” to the performance of a specific referenced asset or index. Structured notes have a fixed maturity and include two components – a bond component and an embedded derivative. Financial institutions typically design and issue structured notes, and broker-dealers, often for a large commission, sell them to individual investors.
Brokers often pitch structured products, as providing “downside protection” against losses to a related index while allowing modest up side gain potential. Of course, this is only true if the value of the index doesn’t fall below a predetermined price. If the price falls below that point, the losses in structured notes can still be huge.
Sometimes these structured products can have misleading names like market linked certificates of deposit (CDs) or principal protected notes.
Brokerage firms have two main duties in recommending structured notes like UBS ETRACS. First, brokerage firms are required to perform adequate due diligence on any product they recommend. Second, brokerage firms are required to ensure that all recommendations made are suitable for their client in light of the client’s age, investment experience, net worth, income, and investment objectives.
Risks of Structured Notes:
Complexity – These products are extremely complicated and typically only suitable for very sophisticated investors.
Call risk – Some structured notes have “call provisions” that allow the issuer, at its sole discretion, to redeem the note before it matures at a price that may be above, below or equal to the face value of the structured note.
Tax considerations – The tax treatment of structured notes is complicated and in some cases uncertain.
Market risk – Despite advisors often selling structured notes as having downside protection, there are usually limits to that downside and in the wrong market conditions losses can still be extraordinary.
Issuance price and note value – The price you will pay for a structured note at issuance will likely be higher than the fair value of the structured note on the date of issuance.
Liquidity – Your ability to trade or sell structured notes in a secondary market is often very limited as structured notes (other than exchange-traded notes known as ETNs) are not listed for trading on security exchanges. As a result, the only potential buyer for your structured note may be the issuing financial institution’s broker-dealer affiliate or the broker-dealer distributor of the structured note.
Payoff structure – Structured notes may have complicated payoff structures that can make it difficult for you to accurately assess their value, risk and potential for growth through the term of the structured note.
Participation rates – Some structured notes provide a minimum payoff of the principal invested plus an additional payoff to you based on multiplying any increase in the reference asset or index by a fixed percentage. This means that sometimes while the downside is large the upside is limited.
Capped maximum returns – Some structured notes may provide payments linked to a reference asset or index with a leveraged or enhanced participation rate, but only up to a capped, maximum amount.
Knock-in feature – If the reference asset or index falls below a pre-specified level during the term of the note, you may lose some or all of your principal investment at maturity and also could lose coupon payments scheduled throughout the term of the note.
Credit risk – Structured notes are unsecured debt obligations of the issuer, meaning that the issuer is obligated to make payments on the notes as promised. These promises, including any principal protection, are only as good as the financial health of the structured note issuer.
UBS ETRACs ETNs may not be Suitable for you.
ETRACS ETNs are complex, high risk senior, unsecured, unsubordinated debt securities that are designed to track the total return of a specific market index. Due to their risk and complexity, ETRACS ETNs are not appropriate for conservative investors or seniors seeking to preserve their capital.
The White Law Group is investigating the liability that brokerage firms may have for unsuitably recommending the following complex and risky UBS ETRACS ETNs to investors, among others:
AMU ETRACS Alerian MLP Index ETN
AMUB ETRACS Alerian MLP Index ETN Series B
BDCL ETRACS 2xLeveraged Long Wells Fargo Business Development Company Index ETN
BDCS ETRACS Linked to the Wells Fargo Business Development Company Index ETN
BDCY ETRACS 2x Monthly Leveraged Wells Fargo Diversified Business Development Company Index ETN Series B
BDCZ ETRACS Linked to the Wells Fargo Business Development Company Index ETN Series B
DJCB ETRACS Bloomberg Commodity Index Total Return ETN Series B
DJCI ETRACS Bloomberg Commodity Index Total Return ETN
DVYL ETRACS Monthly Pay 2xLeveraged Dow Jones Select Dividend Index ETN
FUD ETRACS CMCI Food Total Return ETN HDLB ETRACS Monthly Pay 2xLeveraged US High Dividend Low Volatility ETN Series B
LBDC ETRACS 2xLeveraged Long Wells Fargo Business Development Company Index ETN Series B
LMLB ETRACS Monthly Pay 2xLeveraged Wells Fargo MLP Ex-Energy ETN Series B
MLPB ETRACS Alerian MLP Infrastructure Index ETN Series B
MLPG ETRACS Alerian Natural Gas MLP Index ETN
MLPI ETRACS Alerian MLP Infrastructure Index ETN
OILX ETRACS S&P GSCI Crude Oil Total Return Index ETN
PFFL ETRACS Monthly Pay 2xLeveraged Preferred Stock ETN
PYPE ETRACS Linked to the NYSE® Pickens Core Midstream Index
SDYL ETRACS Monthly Pay 2xLeveraged S&P Dividend ETN
SMHB ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN Series
BUAG ETRACS CMCI Agriculture Total Return ETN
UBG ETRACS CMCI Gold Total Return ETN
UCI ETRACS CMCI Total Return ETN
UCIB ETRACS CMCI Total Return ETN Series B
USV ETRACS CMCI Silver Total Return ETN
WTIU UBS ETRACS – ProShares Daily 3x Long Crude ETN
Financial professionals and brokerage firms have a duty to recommend only investments that are appropriate for the client based on the client’s age, investment experience, net worth, and investment objectives.
If you have suffered losses investing in UBS ETRACS ETNs, you may be able to recover your losses through FINRA arbitration. For a free consultation with a securities attorney, please call the White Law Group at 888-637-5510.
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 Franklin, Tennessee.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.