A Reverse Convertible Story With A Good Ending
Reverse convertible securities are very complex investments generally marketed and sold to the unwary investor as safe investments with the lure of producing a higher income level with no additional risk. In an article by U.S. News Dan Solin writes about the risks of choosing complex investments such as these.
Reverse convertibles consist of a high yield, short term note issued by a listed company, that is linked to the performance of an underlying stock. Whenever the note matures, the investor can then get the return of his or her principal or, if the stock has fallen below a designated price, he or she then gets the stock in lieu of their principal. Bottom line is if the stock drops dramatically, you can lose everything.
A recent FINRA arbitration case ended up well for an elderly investor who had taken the bait and invested in reverse convertibles. Dominic Annino was an elderly cancer survivor with only a high school education whose goal was to protect his principal and generate income. Unfortunately, his Wells Fargo broker convinced him that reverse convertibles were secure and would provide him even a higher stream of income. Mr. Annino lost roughly $106,020 of the $300,000 invested. The FINRA arbitration panel awarded him $125,000 in compensatory damages and assessed the entire $15,750 in forum fees against Wells Fargo. (FINRA# 09-00339; Dominic V. Annino et al v. Wells Fargo Investments, LLC)
Although Mr. Annino’s story has a happy ending, many investors have suffered substantial losses in reverse convertibles. If you are one of those, please contact our securities law firm for a confidential, no obligation consultation at 1-800-259-9010.