If so, the securities attorneys of The White Law Group may be able to help.
Structured notes and other derivatives products have been marketed by Wall Street as safe and secure investments. Of course, there’s safe and then there’s safe. Retail investors of all stripes have lost at least $113 billion by purchasing these purportedly safe instruments, according to a new study conducted by the nonpartisan policy center Demos and The Nation Institute, a media think tank.
That’s worrisome, considering financial institutions appear to be ramping up the sales of these products. Last year, banks and brokers sold more than $52 billion in structured notes, according to the study. In the past, the notes were sold strictly to sophisticated institutional investors. In recent years, however, structured notes have been repackaged and sold to retail investors — often, senior citizens —as a principal protection tool.
Indeed, structured notes with principal protection are among the most popular products being pitched to income-oriented investors, the study said. These investments combine a zero-coupon bond and an option whose payoff is linked to an underlying asset, index or benchmark, or a basket of benchmarks. The notes, which pay off based on the performance of the linked index, can provide reasonable returns and upside potential — certainly attractive given today’s puny money market and CD rates.
But as the name implies, structured products can be complex. Last week, regulators warned investors that structured notes with principal protection often come with confusing terms, low guarantees and can tie up money for as long as a decade. The alert from the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. stressed that the investments are not risk-free.
The SEC said principal-protected notes vary wildly by issuer and that investors tend to ignore or don’t understand what is spelled out in prospectuses. Also, the commission warned that principal-protected notes do not always protect principal.
Some issuers of principal-protected notes guarantee only a certain amount of the principal — in some cases, as little as 10%. Sometimes, the principal is protected only if a contingency stipulated in the prospectus is met.
Other sellers of the notes do guarantee 100% of principal. But even that’s not a lock. If the issuer of the note goes bankrupt, the investor likely will lose all or most of the money invested.
In April, for example, UBS Financial Services Inc. agreed to pay $10.7 million in fines and restitution to settle Finra allegations that its advisers misled investors about the “principal protection” feature of structured notes issued by Lehman Brothers Holdings Inc. that it sold a few months before that firm collapsed.
In its complaint, Finra said that some UBS advisers didn’t understand the complexity of the 100% principal-protected notes that Lehman issued and failed to tell investors that they were unsecured obligations.
In settling the case without admitting wrongdoing, UBS said that it was pleased to have the matter resolved and that most structured-product sales had been done properly.
If you have questions about your investment in a structured product, the securities attorneys of The White Law Group may be able to help. To speak with a securities attorney, please call the firm’s Chicago office 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, please visit the firm’s website at https://www.whitesecuritieslaw.com.