Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) broker Katherine Nishnic (Nishnic), currently associated with Centaurus Financial, Inc. (Centaurus), has been subject to at least eight customer complaints during her career. The majority of the customer complaints against Nishnic concern allegations relating to unsuitable recommendations in structured products. The law offices of Gana Weinstein LLP are currently representing investors, including Centaurus investors, who were surprised to find out that the “bonds” that were recommended by their advisors have almost completely stopped paying interest while plummeting in value.
What many investors in this situation did not realize was that they were not sold bonds at all but instead complex structured products that go by a variety of names including steepener notes, adjustable rate market notes, spread linked notes, or structured notes. Regulators have already stated that it is improper to sell these investments as a fixed income substitute or to compare them to bonds in terms of producing a revenue stream. However, in our firm’s experience it appears that many brokers have been selling structured products as bond alternatives.
Structured products range in risk from benign to extreme. However, most structured products produce inferior risk/return profiles than ordinary debt or equity instruments because the brokerage firms that issue these products seek to profit from the spread between the payment to investors and the amount of money the brokerage firm can make from the issuance. When dealing with complex structured products most investors will lack the ability to understand the merits of investments nor are they appropriate for investors seeking a fixed or reliable income and have a desire for preservation of capital.
Some of the more complex structured products that our firm is seeing reference two different bond yield curves and sometimes one stock market index in order to compute if interest will be paid and how much. A math degree is needed to even begin to comprehend the probabilities of payment on these kinds of instruments. The biggest driving factor on payment – assuming the S&P 500 Index performs well – is the spread between interest rates on various treasuries. The structured products often reference the spread between either the 2 year and the 5, 10, and 30 year treasury bonds for the most part. The wider the spread the greater the profit and payment from the structured product.
When the spread goes negative an inversion of the yield curve occurs. Many economists believe an inverted yield curve is one of the best indicators of an upcoming recession. During these periods these types of structured products can pay as little as 0% for years at a time. In addition, the market for these products collapses as investors will demand steep discounts on the purchase price to compensate for the lack of interest payments. In this way the structured product will be priced like an options contract set to mature 10 to 15 years in the future.
These disastrous structured products can put investors in real conundrum – either wait a decade or more for full repayment or sell now at steep loses. For some investors the maturity date may exceed their actual lifespans.
Nishnic entered the securities industry in 1994. From March 2010 until June 2015 Nishnic was registered with J.P. Turner & Company, L.L.C. Since May 2015 Nishnic has been registered with Centaurus out of the firm’s Lexington, South Carolina office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. Investors may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases involving complex financial products such as structured products. Our consultations are free of charge and the firm is only compensated if you recover.