The investment fraud attorneys at Malecki Law announce the firm’s investigation into potential securities law claims against broker-dealers relating to the improper sale of natural gas and oil linked structured notes and similar products to investors.
Malecki Law is interested in hearing from investors who purchased structured notes issued by well-known financial institutions, including Bank of America Merrill Lynch (NYSE: BAC), Citigroup (NYSE: C), Credit Suisse (NYSE: CS), Goldman Sachs (NYSE: GS), JP Morgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS), UBS (NYSE: UBS), and Barclays (NYSE: BCS).
These investment products, often bearing such names as “Phoenix,” “Plus,” “Enhanced Return,” “Principal Protected,” “Bullish,” “Leveraged Upside” or “Accelerated Return,” were reportedly marketed to investors as a way to make significant returns and income from the rising price of oil. In addition to promises of increased gains, investments like these are frequently also sold to investors with assurances that their potential losses would be limited and their initial investment would be protected.
However, the steep declines in the price of oil over the past 12-18 months have cost investors in these products deeply, according to reports. The Wall Street Journal recently reported that the market for these and similar structured notes linked to the price of oil and other energy related assets totals at least $1.3 billion for 2015 alone. There were more than 300 such products issued – nearly one per day – in 2015, per the WSJ.
Despite the enormous volume of structured notes sold to investors by large firms, products like these frequently have no secondary market, meaning that they are illiquid. This makes it very difficult for investors to sell after they made their initial investment. Occasionally, investors may be able to get out of illiquid investments, but more often they are forced to sell at a significant discount, thereby incurring large losses. For example, one HSBC-Morgan Stanley note reportedly was issued to investors at $10 and is now valued on paper at roughly $7.23 but will only sell for $7.02, as of last week – a roughly 30% decline.
Unfortunately, the complexity of many structured products frequently hides significant risk factors. These risk factors apparently came to fruition for investors in one recent structured note issued by Barclays in April of 2014. As reported by Bloomberg, the largest deal of 2014, a $104.6 million issuance from Barclays, lost 42 percent of its value. In total, $437.1 million in structured notes matured in the first 10 months of 2015. Out of that pool, investors lost a staggering 44%, or roughly $194.3 million, according to reports.
As a general matter, these investments are too risky and unsuitable for retirees or other investors who are in the market for conservative investments because of their complexity, illiquidity, and hidden risks. Yet, large Wall Street firms continue to create complex products and sell them to their customers –generating large commissions and fees for themselves – without regard to the devastating losses their customers may suffer.
Investors are not without hope, however. Those who suffered losses in oil linked structured notes and related products may have a claim against the firm that sold them and could be entitled to reimbursement for their losses.
Investors are encouraged to contact the investment fraud attorneys at Malecki Law for a free, no obligation consultation and case evaluation at (212) 943-1233.