Did Your Stockbroker Sell You Steepener Notes?

Silver Law Group is currently investigating broker-dealer firms and financial advisors that improperly marketed and sold Steepener Notes, which are non-traditional, long-term, illiquid, and highly complex products that many brokerage firms have been selling to unsuspecting clients over the past decade.

Steepener Notes are structured products that pay a regular interest payment that is tied to the yield curve, which measures interest rates on U.S. Treasury securities. The amount of the payment is calculated based on the difference between long-term and short-term interest rates. Thus, the “steeper” the curve, the better the investment performs. However, it means that Steepener Notes are risky. If the yield curve is flat, as it has been for much of the last decade, the payments to investors are minimal or zero. Similarly, if the yield curve is inverted, as it was in 2018, investors do not receive any interest payments.

Many brokerage firms have been peddling these products to main-street investors without fully disclosing the risks, complexity, and hidden costs involved. Failure to make adequate disclosures and/or communicate certain risks and other aspects of these investments to customers may subject broker-dealers to liability for losses incurred by customers.

Our elder financial fraud and stockbroker misconduct attorneys can help you recover losses in steepener notes.

Steepener Notes Are Risky And May Not Pay A Regular Interest Payment

Steepener Notes are sometimes marketed as a source of fixed income. This is not the case. The fixed payment on a Steepener Note is calculated via a complex mathematical formula, which is often tied to the yield curve. First of all, under certain market conditions, a Steepener Note could pay little or zero to an investor for prolonged periods of time.

Second, Steepener Notes often pay a “teaser rate” for the first one or two years of their term. This means that the notes pay an above-average payment for several months to entice investors to purchase the investment, then, after one or two years, the notes pay based on the yield curve, which may be substantially less.

Steepeners Are Illiquid

Steepener Notes are not traded on any public exchange, meaning there is no public market for the investments. Therefore, once an investor buys a Steepener Note, it is very difficult to sell. Furthermore, pursuant to the terms of many of these investments, an investor who sells their Steepener Note before it reaches maturity may be subject to penalty fees, only compounding their losses.

Steepener Notes are long-term investments, with terms lasting 10-30 years. This means that an investor’s principal investment funds are essentially “locked up” until the note reaches maturity. Furthermore, as explained above, investors may not receive any interest payments for these extended time periods.

Steepeners Are “Callable”

Steepener Notes are “callable.” This means that under the terms of the note, the issuing financial institution can buy back the investment at almost any time. This means that if the yield curve is in fact steep—meaning the interest payments to investors are high—the issuer can “call” back the note and stop making these lucrative payments to investors.

Did You Lose Money Investing In Steepener Notes?

Broker-dealers and financial advisors are obligated to explain these risks to investors before selling Steepener Notes. The Financial Industry Regulatory Authority (“FINRA”) has conducted investigations and taken regulatory action in the past to address misconduct in the marketing and sale of these investments. Unfortunately, investors continue to incur losses on these risky products.

The Silver Law Group is experienced in representing investors in securities and investment fraud cases nationwide. Our lawyers can help you recover investment losses due to stockbroker misconduct and most cases are handled on a contingency fee basis, meaning you won’t owe us any money until we recover your money for you.

Scott Silver, managing partner of Silver Law Group, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and has extensive experience representing investors in securities and investment fraud cases. Our attorneys can meet with you in person or via teleconference. Please contact us for a confidential consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.