Securities Lawyers Blog
The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that Broker Lawrence Catena (Catena), currently employed by Morgan Stanley 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), Catena’s most recent customer complaint alleges that Catena 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 May 10, 2022.
Claimant alleges, inter alia, unsuitability with respect to structured product investments – December 2021 to May 2022
The performance of structured products, driven by the market data, are a type of derivative. A structured product is commonly tied to a reference index that determines its market risk. The source can be a single security, a basket of securities such as 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.
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 misrepresent these investments to clients as fixed income or bond like investments with 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. A couple of examples of structured products linked to single securities shows the extreme risk of these products without meaningful benefit. Our firm reviewed a structured note linked to Peloton’s stock, which offered investors a 1.0625% monthly return (12.75% annually), along with another note connected to Zillow’s stock that promised 12% annual interest paid monthly, provided the stock prices remained above a reference 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.
Catena entered the securities industry in 1990. Catena has been registered as a Broker with Morgan Stanley since 2020.
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.