Securities Lawyers Blog
The law offices of Gana Weinstein LLP are announcing their investigation into potential securities claims against brokerage firms over sales practices related to the recommendation of structured notes linked to oil & gas. These structured products are issued by Barclays (NYSE:BCS), Morgan Stanley (NYSE:MS), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Citigroup (NYSE:C), Bank of America Merrill Lynch (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Credit Suisse (NYSE:CS), and BNP Paribas among others firms. The structured notes are issued under the names Principal Protected Notes, Principal Protected Booster Notes, Buffered Bullish Notes, Accelerated Return Notes, Strategic Return Notes, Capped Leverage Return Notes, Target Term Securities, Market Linked Notes, E-Tracs, Return Optimization Notes, Auto-Callable Securities, Performance Leveraged Upside Securities (PLUS), and Equity Linked Securities (ELKs).
Brokers often pitch structured products as providing “downside protection” against losses to a related index while allowing modest up side gain potential. However, today investors are waking up to the fact that structured products linked to the oil market are offering no protection. According to Bloomberg, retail structured notes meant to protect against a drop in crude failed to do so. Of the $437.1 million in oil related structured products that have matured this year, 44 percent, or $194.3 million of principal has been lost. The largest deal in the oil space is a $104.6 million Barclays issuance in April 2014 that has lost 42 percent of its value.
Indeed, Bloomberg found that all but three of the 39 notes examined protected against a certain percentage of losses, typically in the range of 10 percent to 20 percent. These notes quickly breached these loss limits as crude oil prices have declined more than 60 percent. Once the securities breached the “soft barriers” investors became exposed to the full loss at maturity and the value of the notes became wholly dependent on the change in oil prices.
The 14-month Barclays notes issued on April 11, 2014, occurred when a barrel of crude cost $103.74. The notes promised to pay 7.2 percent at maturity as long as oil did not drop more than 20 percent. If oil drops, the investor picks up the tab. When structured notes matured on June 22, oil was trading around $60 a barrel and the investment returned only $60.9 million of principal to investors.
In addition, on August 24, 2015, the Securities and Exchange Commission (SEC) issued a Risk Alert stating that the agency analyzed 26,600 structured product transactions totaling $1.25 billion in assets and found significant numbers of unsuitable recommendations for the purchase of these investments based upon investor’s investment objectives and needs. The SEC also cited weaknesses in brokerage firms’ supervision of sales of structured products.
Gana Weinstein LLP represents investors who have suffered investment losses due to broker wrongdoing, such as churning and unsuitable investments. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.