What is a Reverse Convertible Security
Reverse convertible securities are illiquid, esoteric investments being sold by financial professionals to retail investors seeking investment income. The features of reverse convertibles are extremely difficult to understand. Reverse convertibles are products that have been created by investment banks and brokerage firms. The investments have a built in fee charged to investors ranging from 1 to 8 percent of the underlying investment value. Reverse convertibles package features of a bond, an option, and stock from an underlying company to investors. In exchange for receiving an above average premium such as 7 to 40 percent, the reverse convertible purchaser bears the downside risk of the underlying stock that is packaged into the reverse convertible. Depending on the terms of the reverse convertible and performance of the underlying stock, the investor may receive less cash than was originally invested or a certain number of shares of the underlying company’s common stock. Investment professionals have a duty to research and understand all the features of reverse convertibles prior to recommending the investment to any client.
Risks of Reverse Convertibles
Reverse convertibles are one of the most complex products being sold in the market today. Even Investment professionals themselves have difficulty explaining the complexities and the relevant risks and features to prospective investors. The investment risks include credit risk, market risk, and liquidity risk. In fact, reverse convertibles may not suitable for any retail investors. Several FINRA members have already been fined for failing to adequately warn investors of the risks and features associated with reverse convertibles. In addition, the SEC is also investigating whether the investment banking and brokerage firms properly priced reverse convertibles sold to the investment public. Despite the widespread risk, senior citizens were sold reverse convertibles with inadequate risk disclosures.
Legal Help for Victims with Losses in Reverse Convertibles
If you have sustained significant losses in reverse convertibles you may have a claim for breach of fiduciary, negligence, failure to supervise, and fraudulent misrepresentations and omissions. The Financial Fraud Attorneys at Gilman Law LLP is a leading securities fraud law firm and is here to help you recover damages for your reverse convertibles claim. For a FREE consultation and evaluation of your case, please fill out our Free Consultation Form Online, or if you need to speak to an attorney right away CALL TOLL FREE (888) 252-0048 today.