Investment Products Involved In Recent Arbitration

Helping You Maintain Best Practices in Regulatory Compliance

FINRA rules are clear with regard to a brokerage firm's responsibility to ensure that its representatives are making investment recommendations that are suitable for the investors' short and long-term goals. Investment professionals can find themselves the target of FINRA, SEC and state securities board investigations if rules are not followed and investors suffer substantial losses to their accounts.

There are two products, leveraged exchange-traded funds and reverse convertible securities, that have been growing in popularity over the past few years and that have also come under considerable scrutiny due to the level of risk associated with them. If your organization deals in these securities, it is important that you seek the advice of an experienced nationwide investment products attorney who can help to ensure that your sales practices associated with them are in compliance with FINRA rules.

Experienced lawyers handling cases in Michigan, Florida and nationwide.

Leveraged Exchange-Traded Funds (LETF)

ETFs typically track an underlying benchmark or index. Leveraged ETFs seek to create double or triple the return of the benchmark or index they are tracking. It is not uncommon for these types of funds to be debt heavy and contain low-quality assets. In addition, most leveraged ETFs reset on a daily basis. These are sophisticated investment products that are not for everyone. Depending on the fund, there can be risk associated with this type of investment that not all investors are able to tolerate. In June of 2009, FINRA took the extra step of issuing a regulatory notice to brokers about considering the risk associated with ETFs, including leveraged ETFs, when recommending them to potential investors.

Reverse Convertible Securities

A reverse convertible security is typically a short-term note that is linked to an underlying stock, though it can be linked to an index or other financial asset. During the life of the note, a coupon rate is paid. In addition, the investor receives either the full principal amount of the investment or a predetermined number of shares of the underlying stock when the note matures. If the value of the underlying asset declines during the life of the note, the investor can suffer substantial losses. Claimants' attorneys are constantly looking for these types of cases, so it is important that investment professionals remain diligent with regard to investor suitability, risk disclosure, and other related issues when selling reverse convertibles.

The attorneys of the Hertz Schram PC Securities Team have extensive direct experience with these products, and FINRA's views with regard to how and to whom they are sold. We can review your sales literature and supervisory procedures for these products and advise you of any potential issues that could lead to regulatory problems or investor claims down the line. Our firm also represents individual investors and other claimants in select actions against brokers and brokerage firms.

Call for an Initial Consultation

Contact our office today to discuss your case with a Michigan attorney who understands leveraged exchange-traded funds and reverse convertible securities. You can reach us by phone at 248-494-4486 or via e-mail.