Structured finance transactions have gained significant traction among individual investors and financial institutions. Over the past two decades, structured finance transactions have gained significant traction among individual investors, financial institutions, retail investors, and institutional investors.
Investors are sometimes left grappling with substantial losses when these complex financial instruments fail to perform as promised. If you have suffered losses in structured products following recommendations from your stockbroker or financial advisor, it’s crucial to understand your rights and the steps you can take to recover those losses.
At Bakhtiari & Harrison, our team of attorneys, with extensive experience in handling such cases in federal court, state court, and arbitration, can help you navigate the complexities of all types of structured products and explore your legal options for recourse.
What Are Structured Products?
Structured products consist of a wide range of securities, including structured notes. They are derivative products and often a basket of securities offering pre-packaged investment strategies that utilize derivatives and can manifest as various financial instruments, such as bonds or notes. These investments are intricately tied to the performance of underlying assets, which may include a diverse array of elements such as asset-backed securities, equities from major companies like Apple, or various market indices.
While structured finance transactions can present significant upside potential and the allure of high returns, they also encompass substantial risks. This complexity can render them unsuitable for many retail investors, as the intricate nature of single securities or collateralized loan obligations can lead to confusion and uninformed decision-making, ultimately resulting in millions of dollars lost in the financial products space.
Risks Associated with Structured Products
Some of the most common risks involved in investing in structured notes are various risks that might not be entirely transparent for investors. These risks include:
- Market Risk: The performance of a structured product is often tied to the underlying assets; if those assets decline in value, so does the structured product.
- Liquidity Risk: Many structured products are not listed on exchanges and are challenging to sell, leading to significant losses if you need to liquidate your investment quickly.
- Credit Risk: The issuer of the structured product may default, leading to a complete loss of your investment.
- Complexity: These products’ unique features and structures make them challenging to understand, even for seasoned investors.
Failure to disclose these risks adequately can support a claim for investment fraud.
Understanding Misleading Information and Investment Fraud
One of the primary reasons investors may seek to recover losses from structured products is if they receive inaccurate or misleading information before investing. Brokers and financial advisors have a responsibility to provide clear, honest guidance. If your broker misrepresented the nature of the investment or downplayed the associated risks, you might have a valid claim for investment fraud.
Investment fraud can occur in several ways, including:
- Providing false or misleading information about the potential returns of structured products.
- Failing to disclose the risks could lead to significant financial losses.
- Not adequately explaining the complexities of the investment, leaving investors to make uninformed decisions.
If you believe you were misled or did not receive the full spectrum of information, consulting with an attorney specializing in investment fraud is crucial.
When to File a Claim for Structured Product Losses
Investors may have grounds for filing a claim to recover losses associated with structured products if:
- You Received Inaccurate or Misleading Information: If your broker or advisor provided false representations about the product.
- The Risks Were Not Fully Disclosed: If your advisor failed to inform you of critical risks, such as liquidity issues or credit risk.
- The Investment Was Unsuitable for Your Portfolio: If structured products were inappropriate for your financial situation, age, investment goals, or risk tolerance.
- Your Broker Had a Conflict of Interest: If your broker recommended the product based on their financial gain rather than your best interests.
- The Structured Product Was Unsound: If due diligence was not performed, leading to investing in a flawed product.
- Fraud in Connection with the Structured Finance Transactions: illegal acts within the dealings of complex financial products, where entities may misrepresent details, fail to disclose crucial information, manipulate market prices, or act on conflicts of interest to deceive investors.
If any of these situations apply to you, it’s time to discuss your case with an experienced attorney who understands the intricacies of structured products.
The Role of Brokers and Advisors
The Role of Brokers and Financial Advisors Brokers and financial advisors are crucial in helping investors navigate their investment choices. However, the incentives provided to brokers—often in the form of commissions and bonuses—can motivate them to promote certain structured products, regardless of their suitability for a client’s portfolio. This misalignment of interests can result in substantial financial losses for investors, sometimes amounting to billions of dollars.
For instance, major brokerage firms, investment banks, and private equity firms have sometimes pushed products that may not align with a client’s risk tolerance. Notable financial institutions like Morgan Stanley, Deutsche Bank, J.P. Morgan, Bank of America, UBS, and Bank of New York Mellon have faced scrutiny for their marketing strategies surrounding structured credit products, leading to questions about their investment offerings’ transparency and ethical considerations.
Understanding Misleading Information and Investment
Fraud unfortunately, not all investment professionals adhere to ethical standards, leading to situations where investors are misled or inadequately informed. Misleading information can come in many forms, from overly optimistic projections about performance to downplaying associated risks. In cases involving structured credit products, investors may have been given assurances or insights that were ultimately unsubstantiated, further complicating the recovery of losses.
When to File a Claim for Structured Product Losses
If you believe you have been misled about structured products, it is crucial to understand your legal rights. Engaging a structured credit products plaintiff lawyer can help you assess the potential for recovery. This legal assistance is invaluable in navigating claims against brokerage firms or private equity firms, especially when pursuing accountability for potential malpractices.
If significant financial losses occur due to poor advice or misleading information, your case may warrant legal action for restitution. By comprehensively understanding your rights regarding structured products and seeking appropriate legal counsel, you can take proactive steps to recover your financial losses and hold responsible parties accountable.
The Financial Industry Regulatory Authority (FINRA) has warned against misleading investors about structured products, yet many investors continue to suffer from inadequate explanations and unsuitable recommendations. It is crucial to be aware of your broker’s obligations and to scrutinize the advice you receive.
How to Take Action
If you have suffered losses due to misleading advice or inadequate disclosures regarding structured products, it is vital to take action. Here are steps you can take:
- Document Everything: Keep records of all communications with your broker or financial advisor, including emails, statements, and promotional materials.
- Consult with an Attorney: Contact a specialized attorney who can evaluate your case and determine if you have grounds for a claim.
- Consider Filing a FINRA Arbitration Claim: If you decide to pursue a claim, your attorney can guide you through the FINRA arbitration process, which is often used to resolve disputes between investors and brokers.
- Stay Informed: Educate yourself about structured products and their associated risks. Knowledge is your best defense against future losses.
Investing in structured products requires a deep understanding of risk, including credit risk, mainly when investors depend on brokers and financial advisors who may fail to adequately disclose the associated dangers. For those who have suffered financial losses resulting from misleading information or unsuitable recommendations, it is essential to recognize your rights and pursue legal options.
At Bakhtiari & Harrison, we concentrate on commercial litigation and FINRA arbitration and are committed to assisting investors in reclaiming their losses while addressing a broad range of complex matters. We strive to hold brokers accountable for their actions and ensure that investors receive the justice they deserve.
Next Steps
If you have suffered losses in structured products, including market-linked notes, distressed assets, or collateralized debt obligations due to misleading information from your stockbroker, financial advisor, or investment banks don’t hesitate to contact Bakhtiari & Harrison. Our experienced attorneys are ready to discuss your case and help you explore your options for recovery. Contact us today for a free consultation and take the first step towards reclaiming your financial future.
Structured finance products can offer sophisticated investment opportunities but also come with significant risks. Many investors face substantial losses due to insufficient information, unsuitable recommendations, or outright misrepresentation by their brokers. Understanding your rights and the obligations of your financial advisors is critical in navigating this complex landscape.