The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that Broker Jeffrey Somerstein (Somerstein), currently employed by Equitable Advisors, LLC has been subject to at least one disclosable event. These events include one customer complaint. According to records kept by The Financial Industry Regulatory Authority (FINRA), Somerstein’s most recent customer complaint alleges that Somerstein recommended unsuitable investments in structured products and makes allegations concerning misconduct relating to the handling of the customer’s accounts.
FINRA BrokerCheck shows a settled customer complaint on June 10, 2022.
Client alleges RR sold them unsuitable structured notes in 2021.
Market data drives the performance of structured products, which are a type of derivative. A structured product typically relies on a reference source to assume market risk. The source may be a single security, a collection of securities like a market index, commodities, interest rates, or a real estate loan portfolio. The variety of products that can be structured demonstrates the difficulty in formulating a single unified definition of a structured product.
However, most structured products produce inferior risk/return profiles than ordinary debt or equity instruments because the brokerage firms that issue these products, mostly large banks, seek to profit from the spread between the payment to investors and the amount of money the brokerage firm can make from the issuance of the structured notes minus the commissions and fees that must be paid to brokers selling the product. Due to the complexity of these products most investors will lack the ability to understand the merits of these investments or compute the probabilities of return versus loss. These investments are often misrepresented by brokers as fixed income or bond-like options that provide a return of capital. Due to their elevated risk of loss in comparison to corporate debt and fixed-income alternatives, structured products are rarely a suitable replacement.
Recently, firms have begun selling redeemable structured notes often linked to a single investment or a basket of investments. Examples of structured products linked to single securities illustrate the high risks involved without offering meaningful advantages. We analyzed a structured note associated with Peloton’s stock that guaranteed investors 1.0625% monthly interest (12.75% annually) and a similar note tied to Zillow’s stock, offering 12% annual interest paid monthly, contingent on the stock prices staying above a specified level. The interest payment would be fully canceled only if both stocks suffered a roughly 40% decline in value. In addition, if the stocks lost more than approximately 40% of their value then the investor would also lose their corresponding principal based upon the performance of the stocks and could lose their entire investment. Further, the notes were callable and could be cancelled by the sponsor.
These products are very high risk and low reward propositions because the investor can only profit at most by 12-12.75% over the course of one year. Even if Peloton or Zillow doubled in value all the investor could achieve would be the interest payment as their profit and none of the price appreciation. Meanwhile the maximum loss is 100% of the investment if the stocks fell severely. Accordingly, the investor takes dramatic downside risks associated with the volatile stocks while having no chance to participate in the success of the stock.
According to newsources, a study revealed that 7.3% of financial advisors had a customer complaint on their record when records from 2005 to 2015 were examined. Brokers must publicly disclose reportable events on their BrokerCheck reports that include customer complaints, IRS tax liens, judgments, investigations, terminations, and criminal cases.
Somerstein entered the securities industry in 2003. Somerstein has been registered as a Broker with Equitable Advisors, LLC since 2003.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.