Complex Investments And Surging Arbitration Claims

Hundreds of FINRA arbitration claims have been filed by investors in the last 3 years against brokerage firms like AXA Advisors, Merrill Lynch, Citigroup, LPL, Sagepoint, ING, UBS, Royal Alliance and others where losses were sustained in "complex products." These claims have included investments like non-traded REITs (Amreit, Behringer Harvard, Cornerstone, Desert Capital, Lightstone), mutual funds that hold complex products (CIP Leveraged, Leaf Equipment Leasing Income Fund III, Highland Floating, Cole Credit Property Trust) and Tenants in Common (Sequoia at Stonebriar and Retreat at Stonecrest).

FINRA recently issued a Notice to Members to brokerage firms for supervisory and sales practice related issues because of all the complaints associated with these illiquid and esoteric products. FINRA Notice To Members 12-03, entitled Heightened Supervision of Complex Products, "provides guidance to firms about the supervision of complex products, which may include a security or investment strategy with novel, complicated or intricate derivative-like features, such as structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products, such as asset-backed securities. According to FINRA, these features may make it difficult for a retail investor to understand the essential characteristics of the product and its risks. The entire release can be viewed at the link below.

The Notice to Members discloses that fact that a product is “complex” indicates that it presents an additional risk to retail investors because its complexity adds a further dimension to the investment decision process beyond the fundamentals of market forces. The Notice warns members about what additional steps need to be taken for firms to ensure brokers are adequately disclosing these risks and the investments are suitable.

We expect to see a continued wave of investor lawsuits related to these complex and esoteric products. Many clients have already filed FINRA arbitration claims to recover losses with these products. To learn how losses can be recouped, please contact our law firm in Chicago, Illinois for a no obligation consultation at 312.332.4200 or www.InvestmentFraud.PRO

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p125397.pdf