Securities Arbitration Lawyers BlogSEC Report Finds Flaws in the Retail Sales of Structured Securities Products
35 percent of structured products at the firms investigated were liquidated below 80 percent of their face value, allegations of unsuitable recommendations and sales limit abuse raised
The Securities and Exchange Commission reported Monday that it has spotted failures in many broker-dealers controlling the retail sales of structured products, leading to unsuitable recommendations and potential abuse of limits to sales.
Structured products, according to Investopedia, are the result of taking traditional securities and replacing their typical payment features with other features that are meant to make an investor’s risk-return objectives more customizable than they would be with only traditional securities.
According to the SEC, some broker-dealers have sold these products at a particularly aggressive rate to elderly and non-English-speaking customers, revealing the possibility of exploitation within such recommendations.
According to a “risk alert” issued by the SEC based on data from a two-year review period between January 2011 and December 2012, at least one firm allowed brokers to blow through its limits in regards to structured products without providing any evidence that such investments were suitable. In the alert, the SEC wrote that not only did this indicate weakness in ensuring suitability, but “also significant weaknesses in supervision and implementation of internal suitability and supervisory procedures across branches of the same firm.” The SEC’s data analysts found the same potential weaknesses in all ten of the branches examined.
At one branch, the SEC found that about 60 percent of structured product transactions exceeded the firm’s written concentration guidelines. At this branch, a supervisor would override the standards in place without any specific reason why, using generic language saying the override had been approved.
Because of structured products’ tendency to be complex and accompanied by high risk, officials have become more concerned by their mass sales and the ability of broker-dealers to take advantage of investors who may not understand what they are getting into, according to Law 360.
Another concern mentioned in the risk alert is that of the data collected by the SEC, more than 35 percent of structured products at the firms investigated were liquidated below 80 percent of their face value.
As a result of the investigation and subsequent exposure of deficiencies in these branches’ systems, the SEC cited all the firms it examined, specifically for their failure to determine suitability of structured product sales and inadequate representative training and enforcement of supervisory and suitability procedures, according to the report.
If you have suffered financial losses due to a broker-dealer’s recommendation of structured securities products, you may be eligible to recover your losses through securities arbitration. Silver Law Group has represented many investors who were sold structured products for a substantial part of the investor’s portfolio leading to claims for overconcentration. Many investors have also pursued claims against stockbrokers for selling structured products that failed to perform as designed or were marketed as being conservative when the structured products were risky. Many Wall Street firms sell proprietary structured products which they created internally.
Acting quickly and turning to the right securities fraud attorney with proven expertise in recovering lost funds may be key to your success in your case. Silver Law Group has worked with investors nationwide to recover losses caused by broker misconduct and negligence. Contact us today to have your case reviewed by one of our experienced securities attorneys.