Our law firm is investigating abuses in the sale of structured products, including “reverse convertible” notes (also known as “revertible notes” and “reverse exchangeable securities”). February 2010, FINRA issued an investor alert warning of the risks associated with reverse convertibles. A reverse convertible is a structured product that generally consists of a high-yield, short-term note of the issuer that is linked to the performance of an unrelated reference asset—often a single stock but sometimes a basket of stocks, an index or some other asset.
Unscrupulous brokers are touting yields in these products from 7% to as high as 30% without disclosing all of the risks associated them. Because the purchase of a reverse convertible is the same as buying a note and selling put option back to the issuer FINRA says that “if you don’t have the risk tolerance for selling put options generally, you should question whether you want to invest in a security that contains an embedded one.” Additionally, brokers can earn substantial commissions in selling these products, which can create a conflict of interest if they’re contrary to your investment objectives and risk tolerance.
If you have lost money in reverse convertibles or any structured product or was required to receive stock back, instead of your initial investment, at a substantial loss, upon maturity, then you may have a claim if you were not suitable to purchase these in the first place. Call the Securities Law Firm of Menzer & Hill, P.A. for a free consultation.