Securities Lawyers Blog
The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that financial advisor Rick Davidson (Davidson), currently employed by National Securities Corporation (National Securities) has been subject to at least six customer complaints, one employment termination for cause, and one bankruptcy during the course of his career. According to records kept by The Financial Industry Regulatory Authority (FINRA), Davidson’s customer complaints alleges that Davidson recommended unsuitable investments in various investments such structured products and corporate debt among other allegations of misconduct relating to the handling of their accounts.
In May 2016 Davidson was terminated by Morgan Stanley on allegations relating to registered representative’s exercise of discretion in clients’ accounts as well as receipt of a loan from a Morgan Stanley employee.
Thereafter, in May 2019 Davidson declared bankruptcy.
The law offices of Gana Weinstein LLP are currently representing investors who were surprised to find out that the “bonds” that were recommended by their advisors have almost completely stopped paying interest while plummeting in value. What many investors in this situation did not realize was that they were not sold bonds at all but instead complex structured products that go by a variety of names including steepener notes, adjustable rate market notes, spread linked notes, or structured notes. Regulators have already stated that it is imporoper to sell these investments as a fixed income substitute or to compare them to bonds in terms of producing a revenue stream. However, in our firm’s experience it appears that many brokers have been selling structured products as bond alternatives.
Structured products range in risk from benign to extreme. However, most structured products produce inferior risk/return profiles than ordinary debt or equity instruments because the brokerage firms that issue these products seek to profit from the spread between the payment to investors and the amount of money the brokerage firm can make from the issuance. When dealing with complex structured products most investors will lack the ability to understand the merits of investments nor are they appropriate for investors seeking a fixed or reliable income and have a desire for preservation of capital.
Some of the more complex structured products that our firm is seeing reference two different bond yield curves and sometimes one stock market index in order to compute if interest will be paid and how much. A math degree is needed to even begin to comprehend the probabilities of payment on these kinds of instruments. The biggest driving factor on payment – assuming the S&P 500 Index performs well – is the spread between interest rates on various treasuries. The structured products often reference the spread between either the 2 year and the 5, 10, and 30 year treasury bonds for the most part. The wider the spread the greater the profit and payment from the structured product.
When the spread goes negative an inversion of the yield curve occurs. During these periods these types of structured products can pay as little as 0% for years at a time. In addition, the market for these products collapses as investors will demand steep discounts on the purchase price to compensate for the lack of interest payments. These disasterous structured products can put investors in real conundrum – either wait a decade or more for full repayment or sell now at steep loses. For some investors the maturity date may exceed their actual lifespans.
Moreover, we have represented clients in claims where it difficult for the investor to determine that these structured products are anything other than merely a corporate bond on their account statements. Many firms list these structured products as corporate bonds or fixed income deceiving investors into believing that the investment has a similar risk / reward profile. Accordingly, many investors lack any way to assess the risks taken in their accounts or the distinct and speculative nature of the structured products recommended.
Davidson entered the securities industry in 1985. From December 2008 until June 2016 Davidson was associated with Morgan Stanley. From May 2016 until July 2017 Davidson was associated with Jefferies LLC. Finally, since June 2017 Davidson has been associated with National Securities out of the firm’s New York, New York office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. Investors may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.