Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | complex securities with money back guarantee

Feb/11

24

Principal Protected Notes Fail To Live Up To Their Hype

Comments off · Posted by admin in FINRA

The complex securities sold as 100% principal protected notes have failed to live up to their hype. Recently, numbers of investors have witnessed billions of dollars in losses because of so-called investments that were touted by brokers as good as cash investments.

A New York Times article by Gretchen Morgenson, highlights the questions surrounding 100% principal protected notes and how these complex securities became the darling of Wall Street and a disaster for many investors.

Principal protected notes are essentially zero-coupon notes whose return is partly tied to the performance of an equity index, such as the Standard & Poor’s 500 or the Russell 2000. How an investor makes money on these types of investments, however, is a complex process. The securities promise to return an investor’s principal, typically at the end of 18 months, along with the added gain from the index’s performance if that index trades within a certain range.

For an investor with one of these notes to earn the return of the index, as well as get his principal back, the index cannot fall 25.5% or more from its level at the date of issuance. The index also cannot rise more than 27.5% above that level. If the index exceeds those levels during the holding period, an investor would receive only his principal back.

The New York Times article points out, 100% principal protected notes were sold by many brokerages to conservative investors who typically put their money in low-risk financial products like certificates of deposit. Many investors quickly became disenchanted with their decision to buy into principal protected notes, especially those who bought notes issued by Lehman Brothers Holdings. Those investments are now worth mere pennies on the dollar following the company’s bankruptcy filing in September 2008.

The article lists two investors who lost big on 100% principal protected notes with Lehman were Corinne and Gregory Minasian, according to the New York Times. On the suggestion of their UBS broker they invested almost $100,000 – more than half of their savings – into Lehman notes in early 2008. They ultimately lost everything, and currently have an arbitration case pending in an attempt to recover their losses.

The Minasians contend their UBS broker failed to explain the risks in the securities, and never provided them with a prospectus. They contend they didn’t’ even know their investment had been issued by Lehman Brothers until the firm actually collapsed in 2008.

“I am not a sophisticated investor,” said Mr. Minasian in the NYT’s article. “Many years ago I dabbled in the stock market, but I learned my lessons. Over the past 10 to 15 years my wife and I invested in CDs.”

UBS sold $1 billion of these notes to investors. Commissions were 1.75%, a percentage that is far higher than those generated on sales of CDs. When Mr. Minasian asked about the commission, he says his broker said none existed.

Did your broker or financial advisor sell you 100% Principal Prtected Notes and tell you it was safe and secure? If so, you may have a claim against your broker and the brokerage firm for your losses. Call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority

· · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Jul/10

6

SEC Looking at “Protected” Securities

Comments off · Posted by admin in FINRA

NEW YORK, July 2 (Reuters) – The SEC, U.S. Securities and Exchange Commission
is asking financial firms for information on how they market”principal-protected” notes, Bloomberg reported on Friday, citing people familiar with the matter.
Principal-protected notes, complex securities marketed as carrying a
money-back guarantee, have started to make a comeback lately after losing much
of their luster when Lehman Brothers collapsed in 2008.The SEC wants to know if investors in “principal protected” securities arebeing misled into thinking the principal of their investment will notdecline in value because of the name of the security, Bloomberg said. The agency is also looking at how firms describe the risks associated with the products.
In December, the Financial Industry Regulatory Authority, the securities
industry’s main self-regulatory agency, issued a notice to firms reminding
them that any “promotional materials” used to market principal-protected
notes must be “fair and balanced” and not overstate the “level of protection.”

This year, Bank of America Corp , Barclays Plc , Citigroup Inc , HSBC
Holdings Plc and JPMorgan Chase & Co all have filed offering statements with
U.S. securities regulators to sell principal-protected notes that guarantee
investors the return of either 95 percent or 100 percent of their initial
outlay, even if the underlying investment does not pay off. 

Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

· · · · · · · · · · · · · · ·

Find it!

Theme Design by devolux.nh2.me
To top