Scandals can skyrocket from financial corners that might be least expected and to some investor’s dismay, the recent spotlight falls on structure products, a sort of financial baddie you might want to keep your dimes away from.
Structured products might seem quite tempting, usually dishing out a fixed interest rate for the initial one to three years. However, the devil lies in the details. Following this period, these products may not guarantee any interest. This means most of these structured products, which have a maturity period ranging from 15 to more than 20 years, have no assurance of liquidity. Even if you get to sell it in the secondary market, it’s typically at a serious discount to its face value. So, you might end up losing a lot more than you bargained for.
When Moderately Risky Becomes Dangerously Unsuitable
One name that has been swirling about in this scenario is that of broker Alan Appelbaum. Buckle up as we share some shocking details; Appelbaum allegedly recommended variable interest rate structured products to seven customers whose risk tolerance was no more than moderate. These customers did not want to risk their entire invested principal, and typically, their investment time horizons didn’t align with these investments’ maturity dates.
Hold on, it gets murkier. Appelbaum, according to the US Securities and Exchange Commission (SEC), should’ve known these securities were unsuitable for these customers and yet he allegedly misled them about the investment’s suitability.
He reportedly told his customers that the products would eventually pay off, neglecting to mention the crucial piece of information that customers could lose some or all of their principal investment. This behavior is not just misleading, but can have disastrous consequences, for both the investor and the industry.
Undue Profits and Unauthorized Trading: A Recipe for Disaster
From September 2015 through May 2019, Appelbaum allegedly carried out hundreds of unauthorized trades in the brokerage accounts of these seven customers. That included trades in structured products which were supposedly unsuitable for these customers. The result? Appelbaum reportedly walked away with $1 million in compensation even as some of his customers bore heavy losses.
One customer reportedly lost over $1 million, and another over $200,000. A clear case of an imbalance of justice, wouldn’t you say?
Also, some startling revelations pop up if you dig into Appelbaum’s professional track record – a whopping 20 disclosure events, which includes 14 customer complaints, 4 regulatory events, and an employment separation.
Probe into the Implications: What Can Be Done
These alleged violations of financial regulations and trust spell a possible financial disaster, not just for the investors involved, but the industry as a whole.
Thankfully, checks are in place. Firms can be held accountable for losses in a FINRA arbitration claim if found guilty of inadequate supervision over their employees. Firms are obliged to monitor their employees and can be held responsible for any misconduct that leads to investment losses.
While the wheels of justice grind slowly, justice can be served. Remember, as an investor, It’s crucial you stay informed about your investments. Ensure you understand the risks accompanying your investments, look out for red flags, and do not be afraid to ask tough questions. It may well be your best defense. Safe Investing!