Equity-Linked Notes

We trust professionals to provide us with knowledgeable, experienced, and attentive guidance. Although many people initially think of doctors and lawyers in this context, other professionals like stock brokers and investment managers are certainly included. Since many investors lack a certain level of sophistication when it comes to understanding whether an investment is a good move, brokers may take advantage and encourage an investor to make decisions based on what will benefit the broker and their firm—not the investor. At the Law Offices of Steve A. Buchwalter, our dedicated Los Angeles securities law attorney takes pride in representing investors and holding negligent brokers accountable for making careless and reckless decisions with the money of their clients.

Equity-Linked Notes (ELNs) are debt instruments that typically consist of bonds. The payout on these instruments is based on an underlying entity, which may consist of a cluster of stocks, one stock, or an equity index. Typically, an ELN is principal-protected. This means that investors have a return guarantee on their starting investment. As ELNs have become less common, however, fewer of them come with this critical principal protection. In most cases, the last payment on the ELN is the amount invested multiplied by any gain in the underlying entity, i.e., stock. If the underlying entity doubles in value during the lifetime of the ELN investment, for example, and the participation rate was 50 percent, the investor is entitled to receive $2.25 for each dollar that they invested at the outset. In the event that the underlying entity does not change in value, the investor will receive their initial investment back, provided it is a principal-protected ELN. The reason that many investors suffer losses as a result of investing in ELNs has to do with the safety of the underlying entity. In 2008, for example, brokers had promised investors that ELNs associated with equity in the financial firm Lehman Brothers would yield 100 percent principal protection. The equity failed, and the investors lost huge amounts of money.

When it comes to the relationship between investors and brokers, there is often a disparity in sophistication. Many investors consult a broker because they do not have the requisite financial industry knowledge to make informed decisions about how to manage their money. As a result, the law places the highest burden of fiduciary care on brokers. If you have suffered a financial loss as a result of a broker’s negligence or intentionally malicious behavior, you may be able to recover the difference between the actual value of your account after the carelessness or misconduct and the estimated value of your account had the broker met the appropriate standard of care. California law also allows plaintiffs to seek punitive damages if a defendant’s conduct was intentional, malicious, or wanton. This additional category of damages is designed to punish a defendant for engaging in certain particularly egregious behaviors and dissuade others from doing the same.

As an investor, the last thing that you expect from your broker is negligent or reckless advice or actions. Los Angeles securities fraud lawyer Steve A. Buchwalter has many years of experience litigating claims on behalf of investors who were burned by their brokers. He knows how stressful and devastating a financial loss stemming from a broker’s negligence may be for you and your financial security. Serving clients throughout Los Angeles, Orange, and Ventura Counties, including in Pasadena, Beverly Hills, Irvine, Newport Beach, and Santa Barbara, we offer a free consultation to discuss your situation and the remedies that may be available to you. Call us now at 1-(818) 501-8987 or contact us online to schedule your appointment with a broker fraud attorney.