Securities Lawyers Blog
The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that Broker Jared Kaplan (Kaplan), previously employed by Newedge Securities, INC. 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), Kaplan’s most recent customer complaint alleges that Kaplan 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 with a damage request of $26,000.00 on September 16, 2022.
Customer alleges unsuitable investment allocations to international growth and emerging markets stocks, lack of diversification in managed account structured note portfolio and misrepresentations regarding tax exempt municipal bond yields.
Structured products belong to a category of derivative products, which obtain their performance from data linked to the market. A structured product usually derives its market risk exposure from a specific reference source. A single security, a set of securities like a market index, commodities, interest rates, or a portfolio of real estate loans each can serve as the source. The variety of products that can be structured demonstrates the difficulty in formulating a single unified definition of a structured product.
Since large banks issuing structured products seek to maximize their profits, these products often provide suboptimal risk/return profiles relative to traditional debt or equity instruments due to the spread between investor payouts and the revenues generated from issuing structured notes, minus broker commissions and fees. Due to the intricate nature of these products, many investors will lack the ability to accurately weigh their merits or estimate the probability of returns versus losses. Many brokers falsely present these investments as fixed income or bond equivalents with capital return. Due to the high risk of loss compared to corporate debt or other fixed income alternatives it would never be appropriate to recommend most structured products as fixed income alternatives.
Recently, firms have begun selling redeemable structured notes often linked to a single investment or a basket of investments. Structured products connected to individual securities demonstrate significant risk without delivering substantial rewards. Our firm assessed a structured note linked to Peloton’s stock that provided investors with 1.0625% interest per month (12.75% annually) and another note tied to Zillow’s stock, offering a 12% annual interest paid monthly, conditional on the stock prices maintaining a level above the referenced value. 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.
Kaplan has been in the securities industry for more than 23 years. Kaplan has been registered as a Broker with Newedge Securities, INC. since 2022.
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.