What Are Defective Securities and Proprietary Investment Cases? - Transcript

Complex and alternative investments can offer high returns but come with substantial risks. These products often lack long track records and involve speculative strategies that are not suitable for every investor. At Malecki Law, we advocate for individuals who have suffered losses due to misrepresented investments or investments recommended against their best interests, ensuring their rights are protected and justice is pursued.

Complex and alternative investments often involve nontraditional assets or strategies that differ significantly from conventional investments like stocks or bonds. Examples include hedge funds, private equity, real estate investment trusts (REITs), cryptocurrency, and structured notes.

The risks associated with these investments include:

• Speculative Nature: Many complex investments are highly speculative, meaning their success depends on uncertain future events.
• Limited Track Records: New or innovative investments often lack the historical data needed to evaluate their performance or stability.
• High Volatility: Prices can fluctuate dramatically, leading to significant financial losses in a short time.
• Lack of Liquidity: Many alternative investments cannot be easily sold or cashed out, leaving investors unable to access their funds when needed.
• Hidden Fees: These products often come with complex fee structures that can erode returns over time.

These factors make it critical for brokers and financial professionals to ensure that the investment aligns with the investor’s objectives and risk tolerance.

Regulation Best Interest (Reg BI) and FINRA’s suitability rules require brokers to recommend investments that match their clients’ financial goals, risk tolerance, and investment knowledge. In the context of complex and alternative investments, this means ensuring that the speculative nature of these products aligns with the investor’s objectives.

For example, an investor saving for retirement with a low tolerance for risk should not be placed in a high-volatility cryptocurrency fund. Brokers must not only disclose the risks but also ensure that the investor fully understands them. This includes:

• Explaining potential losses, including the possibility of losing the entire investment.
• Clarifying how the investment aligns with the investor’s financial goals.
• Asking questions to confirm that the investor is comfortable with the speculative nature of the product.

Failing to meet these obligations can lead to investment recommendations against investors’ best interests and significant financial harm to those investors. At Malecki Law, we work to hold brokers accountable for these failures and help clients recover their losses.

Investors rely on their brokers to provide honest and accurate information about the risks associated with an investment. When these risks are downplayed or misrepresented, investors can make decisions that lead to devastating financial consequences.

Common forms of misrepresentation include:

• Overstating Potential Returns: Presenting speculative investments as low-risk or guaranteed to generate profit.
• Failing to Disclose Fees: Not explaining how fees or costs will affect overall returns.
• Minimizing Downside Risks: Neglecting to mention the potential for substantial losses or illiquidity.

If you believe your losses stemmed from misrepresentation, Malecki Law can help investigate the circumstances and pursue damages. Misrepresentation in the securities industry is a serious violation of trust and regulatory rules, and investors have the right to seek accountability.

To mitigate the risks associated with complex and alternative investments, investors should take proactive steps:

• Ask Detailed Questions: Ensure you understand how the investment works, its risks, and its fees.
• Verify Suitability: Confirm that the product aligns with your financial goals and risk tolerance.
• Research the Investment: Look for independent information or seek a second opinion before proceeding.
• Be Cautious of Pressure: Avoid investments promoted with high-pressure tactics or promises of guaranteed returns.

If you feel unsure about an investment, take time to gather more information or consult a trusted advisor. Making informed decisions is the best way to protect your financial interests.

Investing in complex and alternative products carries significant risks, especially when they are misrepresented or not in your best interest for your long-term financial goals. At Malecki Law, we have over 20 years of experience helping investors recover losses and hold financial professionals accountable.

Call us today at 212-943-1233 to speak with a New York securities law attorney. You can also complete our confidential online contact form and we will promptly get back to you. We represent investors in New York, throughout the United States and across the globe.

Transcript:

So defective Securities are securities that are not appropriate for anyone so there are securities that the way that they were structured or the models used to test them did not work and these Investments were sold under false theories so in its in essence they’re fraud cases but what you’re saying is the fraud is that the company knew that these Securities would not operate in the manner in which they were designed to operate and the manner in which they were sold to investors so that is what a defective Securities product is.