Securities Lawyers Blog
The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that Broker Rodger Sprouse (Sprouse), previously employed by Creativeone Securities, LLC has been subject to at least one disclosable event. These events include one regulatory event. According to records kept by The Financial Industry Regulatory Authority (FINRA), Sprouse’s most recent customer complaint alleges that Sprouse recommended unsuitable investments in structured products and makes allegations concerning misconduct relating to the handling of the customer’s accounts.
FINRA BrokerCheck shows a final customer complaint on September 30, 2022.
Without admitting or denying the findings, Sprouse consented to pay civil penalties and agrees to the entry of findings from the KSC Order. The findings indicate that from April 2017 until March 2018, Sprouse sold Purchase Agreements (PA), also known as structured cash flows, as an agent on behalf of Future Income Payments, LLC (FIP). At the time of sale, these PAs were not registered as securities under the KUSA as required.
Marketlinked data drives the performance of structured products, which are a type of derivative. The market risk of a structured product is typically linked to an underlying reference. The origin could be a single security, multiple 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 complexity of these products most investors will lack the ability to understand the merits of these investments or compute the probabilities of return versus loss. Some brokers inaccurately market these investments as fixed income or bond-like instruments that return 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. The extreme risk of structured products associated with single securities is evident in multiple examples, showing little to no real 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. Both stocks could lose around 40% of their value before the interest payment would be eliminated entirely. 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.
Sprouse has been in the securities industry for more than 14 years. Sprouse has been registered as a Broker with Creativeone Securities, LLC since 2023.
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.