Meyer Wilson is currently investigating investment losses resulting from the sale of reverse convertible bonds, reverse convertible notes, and other equity structured products and structured notes that may have been inappropriately recommended to investors.
"Reverse converts" were likely marketed to unsophisticated investors as a good alternative to traditional equity and fixed income investments since they pay interest or are usually tied in some way to an underlying "safe" stock.
These products are often described by a broker as being like a bond, a typically safer short-term investment, but with promises of large interest payments. However, reverse convertibles are far more complex than a bond and often integrate many confusing options.
But brokers frequently don't fully understand the complexities or may specifically understate the risks associated with this kind of investment choosing instead to falsely focus on the positives of this equity linked product. Frequently touted advantages include high risk-adjusted returns, rare access to unique areas of investment and the general protection of one's principal investment.
The many drawbacks of reverse convertible investments include:
This investment loss investigation comes just days after Apple Inc.'s stock sharply declined, with many such investments, tied to Apple's stock performance losing large amounts of money for investors. The largest security linked to Apple was sold by JPMorgan Chase & Co. for $65.5 million of one-year auto-callable notes on Aug. 30, 2012.
People who purchased Apple-linked investment products may be in for an unpleasant reality. As the note matures, investors will end up as owners of Apple shares worth much less than the originally invested amount -- putting the investor at an unfair large financial loss.
This situation became so prevalent that FINRA recently responded with an official regulatory notice for reverse exchangeable securities (reverse convertibles) stating, "Firms that sell reverse convertibles are reminded to ensure that their promotional materials or communications to the public regarding these products are fair and balanced, and do not understate the risks associated with them. Firms are also reminded to ensure that their registered representatives understand the risks, terms and costs associated with these products, and that they perform an adequate suitability analysis before recommending them to any customer."
Predictions put personal investment losses due to reverse convertible investments at 25% or more for what was once touted as a safe "bond-like" investment.
Many investors who placed their savings in similar investments face the same potential fate as those who invested in Apple. Look to see a swarm of FINRA arbitration claims and lawsuits in the near future against major brokerage firms, banks and agents.
The biggest questions left on the table are; "Who's offering these types of investments?" and "How do I know if I should be worried about reverse convertible notes?"
If you have suffered financial losses resulting from a reverse convertible investment or other equity structured products, reach the Meyer Wilson investment fraud attorneys via the online form or by calling for a confidential, no-cost consultation.