New Products, Defective Securities Products and Structured Products

Did your broker sell you a security you did not understand? Did your broker sell you a security they could not explain? Some products (such as CDOs, CMOs, and MBSs) should never have been sold to most investors.

Malecki Law investigates and prosecutes cases that deal with product failure issues in mutual funds, municipal securities, preferred securities, notes bonds, annuities, hedge funds, private placements, REITs, the aforementioned CDOs, CMOs, MBSs, and other structured products. FINRA has stringent rules relating to how these products are sold. If you notice all your investments are difficult to track, your broker may have sold you defective securities. You need a New York defective securities law firm like Malecki Law to review the products in your portfolio at no cost. These complex investment products may seem attractive by the way they are marketed; however, it is very important to understand the risks and costs that are associated with them.

Leveraged ETFs are for day traders and should not be held overnight. Even when buying a well-known mutual fund or municipal bond, it must be sold properly, with full disclosure and considering a bond’s features and expiration, or a mutual fund’s breakpoints, sales charges, and the like.

Structured products seem attractive because they tend to have a principal investment protection built into them, however, you may lose some, if not all, of your principal investment. If your advisor sold you a product with a similar feature you may have been sold a defective security. A New York defective securities attorney at Malecki Law can review your account in a free consultation. The promise to receive principal investment protection depends on the financial health of the company backing the protection. This means that you can lose some, if not all, of your invested monies if the firm goes bankrupt. An example of this occurring was the Lehman Brothers structured notes, during the Financial Crisis of 2008. Lehman Brothers and other firms marketed the product as safe and conservative by selling the idea that the entire principal investment would be protected. Though, this depended on the financial health of Lehman Brothers to back the so-called principal investment protection. Since the firm had been successfully in operation for nearly 160 years, investors seemed to have no reason to worry about the firm’s financial health. Unfortunately, Lehman Brothers declared bankruptcy in September 2008, causing investors to lose their entire invested monies in the Lehman Brothers structured notes.

Defective securities are like a defective airbag. Brokerage firms sometimes create defective financial products and/or misrepresent the products and fail to disclose the risks associated with those “proprietary products,” i.e., products created by the brokerage firms. Many are new products with no track record or historical performance.

You should not have to be a defective securities product lawyer to understand these complex structures, which often have little track record and history. Many times, the broker does not even understand the product themselves, but have been pushed by a brokerage firm to sell it – sometimes also getting misinformation, leaving the investor holding the bag. Moreover, some of these products are only appropriate for the most sophisticated investors.

Many times, these complex products are designed to address specific needs for large, sophisticated investment managers, day traders and other financial professionals. This means that products like these should rarely, if ever, be sold to average investors with more conservative needs or goals. Malecki Law defective securities product lawyers are here to navigate these treacherous waters. Malecki Law is investigating products like this, such as GPB Capital Holdings, Northstar Healthcare Income REIT, Steepeners Structured Products, UBS Yield Enhancement Strategy, Horizon Private Equity, GWG Holdings L Bonds. Our experienced defective securities lawyers at Malecki Law based in New York, are ready to handle these cases for you.

Generic examples of products to keep an eye out for include:

Leveraged ETFs

These products are designed to trade like stocks but at multiples of their target index. In other words, a Triple-Leveraged ETF that follows the S&P 500 would be designed to return three times the return on an investment in the S&P 500 index itself, but also incur three times the loss if the S&P 500 went down. These products are designed to be day-traded, not held long term. Because of the way the products are structured and readjusted, long term investments in these products will only return a loss in the long-term.

These are too often sold without proper risk disclosures as ways to recoup losses or magnify gains. Unfortunately, these investments tend to do neither, instead just amplifying losses.

Commodity Futures

For a knowledgeable, sophisticated investor, speculating on commodity prices can be a way to make substantial profits. However, for the average investor, making an informed decision can be nearly impossible. If you are an average investor and your advisor recommended commodities, it is possible the investments were not suitable investments for you. A New York defective securities law firm like Malecki Law can assess whether you have a case. Commodities are an incredibly unique category of investments. Even investors who have considerable experience in stocks and bonds can be overwhelmed by the commodities market. The average, unsophisticated investor should not venture into these products.

Investors may believe that they are being safe by buying goods. However, what they are actually doing is speculating on the price of that good at some point in the future, which can be very risky.

Collateralized Debt Obligations, Collateralized Mortgage Obligations, and Mortgage-Backed Securities

CDOs, CMOs, and MBSs are largely credited with causing the problems that led to the Great Recession of 2008. These investments were sold as safe, creditworthy products, despite being just the opposite. Companies bundle bad loans together with some good loans, and through creative accounting, were able to obtain good credit ratings for them. They then sold pieces of these “bundles” to investors, who eventually realized huge losses when the bad loans were defaulted on.

Like the other products on this list, these too were sold by brokers who minimized the risks and left their clients “holding the bag” when the investments failed.