Investors Lose Big As Structured Products Fail During COVID-19

Structured Product Losses Stun Retail Investors Who Should Never Have Been Told By Brokers To Buy Them

The recent market turbulence caused by the coronavirus has caused many investors’ portfolios to suffer huge losses, and nowhere is this more evident as the losses suffered by those who invested heavily in structured products, including exchange-traded notes (ETNs) and exchange-traded funds (ETFs).

And while yes, no one could have anticipated COVID-19 battering the economy and the markets, for many investors, they likely shouldn’t have and wouldn’t have gotten involved in these complex investments were it not for the recommendation of their stockbroker.

If you are an investor that has sustained significant losses in ETNs or any other structured product, our investor lawyers at Shepherd Smith Edward and Kantas (SSEK Law Firm) would like to offer you a free, no-obligation case consultation so that we can help you determine whether you have grounds for a broker fraud claim.

Brokers Steered Investors Toward Riskier Investments After 2008 Financial Collapse

ETNs, like other structured products, are not for every investor. They are complex investments that come with a significant degree of risk. Yet, after the 2008 economic crisis, they became an attractive draw for individual investors after central banks lowered the income that could be earned from the safest and least risky investments.

According to The Wall Street Journal, that’s when the demand for this structured product grew. As an example, in addition to more standard ETNs, there was a UBS-issued leveraged ETN that bet on companies that in turn invest in the mortgage market–called a mortgage real estate investment trust (mortgage REIT)– as well as investment in companies that packaged together oil pipeline rights or small business loans.

Such investments came with the possibility of healthy returns especially as the more stable bonds were not rendering many results.

Meanwhile, reports the WSJ, brokers from Wells Fargo, Citigroup, and Morgan Stanley sold billions of dollars worth of exchange-traded funds in 2008 and 2009 alone. (ETFs and ETNs are not the same type of product. Both, however, come with substantial risks and are influenced by the markets.)

In 2013, these three banks were sanctioned by the Financial Industry Regulatory Authority (FINRA) and ordered to pay over $9.1M for the allegedly improper sale of inverse and leveraged ETFs. In February 2020, Wells Fargo consented to pay $35M to settle US Securities and Exchange Commission (SEC) charges accusing its brokers of recommending ETFs even when they were unsuitable and too high risk for retail customers.

Yet even back in 2008, it was clear to many in the industry that ETNs, ETFs, and other structured products shouldn’t be marketed, recommended, or sold retail investors, especially as institutional investors were staying away from them.

Investors Of These Leveraged Investments Now Paying The Price

Now, many ETN investors who placed their funds in these leveraged investments are paying the price.

A significant reason for this is that many ETNs are leveraged so that just as money borrowed was supposed to enhance gains, they are now heightening losses. Already, UBS has removed at least 15 ETNS from the market after they plunged in value and other ETNs from other firms, such as Citigroup, have also sustained huge losses.

Removing beleaguered funds from the market usually results in investors getting paid a fraction of their initial investment. With the coronavirus downturn, some ETN investors have reported losing almost everything.

Structured Product Fraud Law Firm

Yet, unfortunately, there are brokers and their firms that continue to push structured products onto many retail investors even when it’s clear these securities are unsuitable for the client’s investment goals, portfolio, and degree of risk they can afford to take on.

Our ETN fraud and ETF fraud attorneys work with investors throughout the US. For 30 years, we’ve gone up against the largest firms on Wall Street and recovered losses for thousands of investors. SSEK Law Firm represents retail investors, inexperienced investors, senior investors, high net worth individual investors, and institutional investors.