Securities Lawyers Blog
The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that Broker Justin Gillham (Gillham), currently employed by Merrill Lynch, Pierce, Fenner & Smith Incorporated 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), Gillham’s most recent customer complaint alleges that Gillham 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 $1,050,000.00 on July 20, 2022.
The customer alleges that a misrepresentation was made regarding the purchase of a structured note in June of 2021.
Structured products are a class of derivative products that derive their performance from market linked data. A structured product generally references a source against which market risk is taken. 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.
Structured products often offer weaker risk/return profiles compared to standard debt or equity investments since the issuing brokerage firms, mainly large banks, seek to earn from the gap between investor payments and the revenue generated from issuing structured notes, minus broker commissions and fees. Most investors may struggle to grasp the benefits of these investments or accurately assess the likelihood of gains and losses due to their complexity. Many brokers falsely present these investments as fixed income or bond equivalents with capital return. The risk of loss in structured products is significantly higher than in corporate debt and other fixed-income options, making them an unsuitable fixed-income alternative.
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 analyzed a structured note linked to the stock of Peloton that promised to investors 1.0625% interest monthly or 12.75% annually and another note linked to the stock of Zillow which promised a 12% annual interest payment paid monthly so long as the respective stock prices stayed above a referenced value. A decline of around 40% in both stocks would be required for the interest payment to be fully wiped out. 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.
Gillham entered the securities industry in 2002. Gillham has been registered as a Broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated since 2008.
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.