SEC Investigating Complex Structured Note

The Securities and Exchange Commission (SEC) is investigating whether pension funds and other investors have been misled by brokerage firms who fail to make adequate disclosures when recommending complex structured products. Theses structured notes are created by bundling bonds with derivatives and then offering them to the public as a different way to invest in the market, while receiving higher yields than other investments. Sales have risen nearly 60% for the past year, according to data compiled by Bloomberg. Bank of America has underwritten $8.8 billion of structured notes, with Morgan Stanley coming in second by selling $8.3 billion.

An example of the unsuitability of such products for investors is 84 year old Leona Miller, a retired beautician, who got into structured notes after looking for a safe investment that could provide a steady stream of income. According to Bloomberg Businessweek, her Wachovia broker recommended she buy $20,000 worth of bonds and after only two months she had lost 30% of her investment. What she had bought was a structure note, a bond combined with a derivative. It was a reverse convertible note with a put option tied to Merck stock. When Merck’s stock dropped from $40 to below $32, it triggered the put option allowing the issuer to pay her off in Merck shares then worth $26.

All investors, individual investors and institutional investors alike, are incapable of understanding the complexity of these opaque structured notes, which are sold to them with minimal disclosure, if any, and promises of downside protection.

If you have suffered losses from these complex investments, please contact our securities law firm for a free, confidential consultation at 1-800-259-9010. Cases are handled on a contingency basis.

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