Reverse Convertible Sales: UBS, Morgan Stanley, Ameriprise

According to the Investment News, Georgia recently requested information from UBS AG, Morgan Stanley and Ameriprise Financial Inc. in its probe over whether the firms broke the state’s securities laws in sales of structured notes called reverse convertibles.

The Secretary of State’s office sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors, according to a person familiar with the matter, who spoke on condition of anonymity because the investigation is ongoing.

Reverse convertibles are short-term bonds generally sold to individuals that convert into stock if a company’s share price plummets. Georgia began examining the securities in May after lawyers received complaints from investors who asked if the state had any open investigations, Vincent Russo, general counsel and acting assistant securities commissioner for the Secretary of State’s office, said in a telephone interview last month.

Sales of structured notes such as reverse convertibles are soaring as investors frustrated by record-low interest rates on savings seek higher returns through investments that carry more risk. The “complex” securities can be difficult for investors and brokers to evaluate, according to the Financial Industry Regulatory Authority.

Regulators have increased scrutiny of the market, fining some brokers for marketing reverse convertibles to elderly investors or those with little money, as sales have increased. Massachusetts is looking into sales of the products, Brian McNiff, a spokesman for the Secretary of State’s office, said in May.

Kenneth Lench, head of the Securities and Exchange Commission’s structured products unit that investigated Goldman Sachs Group Inc.’s subprime-mortgage investments, said in a September interview that the agency was examining whether brokers overcharged investors for the notes.

Such products are also the subject of investigations of law firms, like The White Law Group.  If you have questions about a structured product or reverse convertible you purchased, the securities attorneys of The White Law Group may be able to help.  For a free consultation, please contact the firm’s Chicago office at 312/238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, please visit our website at https://whitesecuritieslaw.com.