Reverse Convertible Notes

Securities Fraud Attorney Representing Los Angeles Investors

When you place your financial goals in the hands of a broker, you are giving that person more than just access to your finances. Investors often rely on brokers for their expertise and to help them make smart choices when it comes to difficult financial decisions, which may be too complicated for the average person to navigate on their own. Although many brokers take their duty to investors seriously, there are unfortunately a number of brokers who abuse their power and make decisions based on their own financial gain. Los Angeles securities fraud lawyer Steve A. Buchwalter has assisted many Southern California residents with seeking justice after they have been burned by their brokers.

How Reverse Convertible Notes Operate

Reverse Convertible Notes, also commonly known as RCNs, revertible notes, or reverse exchangeable securities, are an investment mechanism that is typically advertised as offering high yields. In general, these devices are structured investments. If an investor purchases an RCN, they will receive a bond that provides payment at a predetermined rate of interest for the lifetime of the note. This is often known as the coupon rate. In most cases, the rate of the coupon is higher than the going market rate. The value of the RCN is associated with the performance of a different and unrelated market asset. The risk or volatility associated with the different and unrelated risk sets the coupon rate.

There are many scenarios in which these products may expose an investor to serious risks. Further complicating the risks associated with RCNs, they may be challenging for the average investor to understand. This also creates opportunities for brokers with bad intentions to take advantage of an investor’s lack of understanding by recommending these investments solely based on the commissions the broker will make. One of the most unique aspects of RCNs is that they also include an option that authorizes the issuer of the investment to provide repayment to the investor in either of two ways. First, the RCN issuer may provide the entire value of the initial investment. In the second instance, the issuer may, upon the note’s maturity, deliver a pre-determined amount of stock shares, as opposed to cash. Under this option, the asset that was used to set the value of the coupon rate is the asset that will be paid out to the investor.

Bringing a Negligence Action against a Culpable Broker

Brokers owe their clients a duty to act with a high level of fiduciary care and skill, especially when it comes to disclosing the risks associated with various investment options. If a broker fails to disclose these material risks, either because of the broker’s negligence or because of the prospect of the broker’s financial gain from encouraging the investor to choose a Reverse Convertible Note over another type of investment, the investor may bring a negligence claim against the broker and the brokerage firm for which they work. If the investor is able to prove that the broker failed to use the appropriate care, the investor will be entitled to receive damages. These generally amount to the difference between the actual value of their account and the estimated value of their account had the broker’s misconduct or negligence not occurred.

Retain a Dedicated Broker Negligence Lawyer in the Los Angeles Area

At the Law Office of Steve A. Buchwalter, our broker negligence attorney and his team have assisted numerous clients in seeking damages from brokers and brokerage firms that failed to provide appropriate advice to their investors. Los Angeles lawyer Steve A. Buchwalter represents people throughout Los Angeles, Ventura, Santa Barbara, and Orange Counties, including in Beverly Hills, Pasadena, Santa Barbara, Irvine, and Newport Beach. Call us at 818-501-8987 or contact us online to set up a free appointment to discuss your situation.