The Financial Industry Regulatory Authority (FINRA) recently announced an enforcement action over sales of reverse convertible notes. H&R Block Financial Advisors, Inc., (Ameriprise Advisor Services, Inc.) were fined $200,000 as a result. According to FINRA, H&R Block Financial Advisors failed to establish adequate supervisory systems and procedures relating to the sales of RCNs to consumers.
Apparently H&R Block did not respond to indications of potential over-concentration in RCNs in customer accounts. H&R Block broker Andrew MacGill was fined and suspended.
One elderly couple incurred losses because of H&R Block’s failures and FINRA ordered $75,000 be paid to them in restitution.
Houston-based securities law firm Shepherd Smith Edwards & Kantas LLP say they are now investigating claims on behalf of investors who purchased reverse convertible notes.
At the same time, in an effort,
FINRA has released an Investor Alert to educate consumers about how reverse convertible notes work. The alert, Reverse Convertibles – Complex Investment Vehicles, explains these instruments often have two components:
- a debt instrument (usually a note and often called the “wrapper”) that pays an above-market coupon (on a monthly or quarterly basis); and
- a derivative, in the form of a put option, that gives the issuer the right to repay principal to the investor in the form of a set amount of the underlying asset, rather than cash, if the price of the underlying asset dips below a predetermined price (often referred to as the “knock-in” level).
FINRA Regulatory Notice 10-09 reminds firms about their sales practice obligations when recommending or selling these complex instruments to retail investors.
Attorneys at Shepherd Smith Edwards & Kantas LLP represent investors nationwide to recover losses, representing clients in Federal and state courts and in arbitration through the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange Inc. (NYSE), the American Arbitration Association (AAA) and in private arbitration actions.
Shepherd Smith Edwards & Kantas LLP says over the past 18 years, they have represented more than 1,000 investors, recoverinh more than $100 million for their clients.