But some of the securities and “investing” opportunities being promoted have little value or interest in the precious metal, and others are nothing more than ponzi scheme or blatant frauds.   For example, the Commodity Futures Trading Commission (CFTC)  charged a precious metals firm in Florida with running a boiler room fraud that bilked investors out of more than $23 million.

Here are some red flags to be aware of with investing in gold:

• Price targets or predictions of swift and exponential growth.
• References to being a “buyout target” for other mining companies.
• Claims that tie stock performance to the general rise in gold prices.
• Scare tactics such as the threat of inflation or an economic meltdown.
• Speculative claims based on a new reserve’s proximity to an existing reserve.
• A change in the company’s name or trading symbol to align it more closely with gold.
• A “free lunch” program that offers to provide educational information about gold investing.

In addition to these redflags, beware of claims that (1) making profits in gold are “easy;” (2) the use of headlines from respected financial news sources regarding gold, which can easily be taken out of context; (3) mention of the names of major investors or investment institutions that provide an air of credibility; (4) statements about how much easier it is for lower-priced stocks to skyrocket in value in comparison to higher-priced stocks; and (5) pressure to invest immediately

Investing in commodities or precious metals like gold, have risks that should be explained to the
investor.  Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately.  At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

Structured notes come by different names and often refer to promises of “principal protection,” “capital guarantee,” “absolute return,” “minimum return” or similar terms.  THEY ARE NOT FREE OF RISK.  Here are some the following types of risk:

1.      Credit risk:  any promise to repay some or all of the money you invest will depend on the creditworthiness of the issuer of the note—meaning you could lose all of your money if the issuer of your note goes bankrupt.

2.      Structural risk:  some of these products have conditions to the principal protection or offer only partial protection, so you could lose principal even if the issuer does not go bankrupt. For example, the principal protection does not apply unless some contingency is met—sometimes called “contingent protection”—so it may provide no protection at all.

3.      Call / Maturity risk:  principal protection may be offered only when the investor holds the note to maturity.  Additionally, the issuer may call or redeem the note before maturity, resulting in a return of the principal but a loss of the income payments.

4.      Liquidity risk:  If you need to cash out your note before maturity, you should be aware that this might not be possible if no secondary market to sell your note exists and the issuer refuses to redeem it. Even where a secondary market exists, the note may be quite illiquid and you could receive substantially less than your purchase price.

5.      Return risk:  The return on your investment—over and above any principal guarantee and assuming you hold the note to maturity—will depend on a host of factors, including the method the issuer uses to calculate gains (or losses) linked to the performance of the underlying asset, index or benchmark (the “market-linked” returns), the note’s participation rate and any minimum guaranteed return.

FINRA’s Investor Alert provided the following questionnaire that investors should use when considering whether to purchase a structure note:

• How do I know whether this product is appropriate for me given my overall investment objectives?
• What is the level of principal protection offered? There is a big difference between 100 percent return of principal and 10 percent return, or something in between. Know your protection percentage.
• Are there conditions to the principal protection? For example, is the protection contingent on the occurrence of specified events?
• What are the fees and other costs? Products offering principal protection can be expensive. You should pay particular attention to the fees of any product you invest in, including those that offer principal protection. Ask your investment professional to explain all of the fees and costs associated with the investment.
• How long will my money be tied up? Structured notes with principal protection are meant to be held to maturity and are often designed for long-term investors. If you need your money back early, you could pay a significant penalty. Furthermore, any downside protection offered might only kick in after a long lock-up period—or it might require you to hold the note until maturity.
• Can I sell or liquidate before the maturity date? While it is easy to turn many investments into cash, liquid markets for some structured products might not exist. If you need to sell your structured note with principal protection before it matures, you might have to do it at a price less than the amount you paid for it, or you may not be able to sell it at all. This is true even if the product has a ticker symbol or has been approved for listing on an exchange.
• Is there a call feature? If so, be sure you understand what can trigger the call and when is the earliest the investment may be called. You will also want to ask your investment professional what might be your game plan in the event your note gets called.
• Are potential gains limited? Some structured notes with principal protection may have limits or caps on the gains you can earn based on the performance of the underlying asset, index or benchmark.
• What are the tax implications? You might wish to consult with a tax advisor to understand the consequences of any particular investment, including imputed interest and any foreign tax consequences.
• How does the pay-out structure work? Is it possible to lose money, or not have any gain at all, even if the underlying asset, index or benchmark goes up? Purchasing a structured note with principal protection does not guarantee positive returns. For example, the underlying asset, index or benchmark might not increase in value—or even if it does, there may be conditions, which in some cases can be counterintuitive, that limit your gains. And, if the entity backing the principal protection at maturity goes bankrupt, you could lose your entire principal.
• What unique risks will I take on as a result of being exposed to the underlying asset, index or benchmark?
• What is the credit risk of the note? Remember that any principal guarantee is subject to the creditworthiness of the guarantor, which is generally the securities firm that structures and issues the note. Be sure to find out as much as you can about the financial condition of the issuer and read its disclosures as carefully as you would for any other bond investment.
• What other risks are associated with this particular product? Be sure you understand how the derivative component of the note impacts the pay-out structure—and ultimately your return.
• What other investment choices are available to me? Carefully consider what might be a good fit for you, and whether there are alternatives to the product you are considering.

Investing in fixed income oriented investments, like structured notes or principal protected notes, has risks that should be explained to the investor.  Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately.  At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

1.      There is a risk of defaults.

2.      A muni’s value may change for reasons having nothing to do with the financial condition of the issuer, such as a change in interest rates.

3.      Information about financial problems that affect the bond’s issuer has not always been readily available to investors.

4.      The current market value of a muni bond may be hard to determine because many municipal bonds trade infrequently.

5.      The overall credit rating of a muni bond may be more reflective of that protection than of the financial condition of the issuer.

Investors considering an investment in municipal bonds should carefully evaluate each investment.  FINRA published the following checklist to help assess the risks of municipal bond investing.

• Verify the type of bond (general obligation vs. revenue), and make sure you understand the bond’s terms and risk factors.
• Ask to see—and read or have your broker review with you—the bond’s Official Statement before you purchase a bond, particularly if it is a new issue. The Official Statement will be a valuable tool for understanding the terms of any bond you might buy in the secondary market, but be aware that the financial and operating data may have been superseded by the issuer’s on-going disclosures.
• Confirm with your broker whether the issuer is current in its disclosure filings and be sure to review the information in the on-going disclosures. Be wary of bonds whose issuers are not current in their disclosure filings.
• Keep tabs on your bond’s credit rating and the issuer’s creditworthiness. Has the issuer of the bond recently been downgraded? Has the issuer filed any default or other material event notices?
• If the bond is insured or otherwise backed by a third-party, verify the credit rating of the bond insurer or other backing.
• If you buy a bond in the secondary market, be sure to ask why the bond is priced as it is. Be aware that the price of a bond can be priced above or below its par value for many reasons, including changes in the creditworthiness of a bond’s issuer and a host of other factors, including prevailing interest rates.
• Understand how the bond’s interest will be paid. Most muni bonds pay semiannually, but zero coupon municipal bonds pay all interest at the time the bond matures and the principal is returned. Variable rate bonds typically will pay interest more frequently, usually on a monthly basis in variable amounts.
• Understand the bond’s tax implications, including the possibility that your bond may be subject to the federal Alternative Minimum Tax (AMT) or may be fully taxable. Also understand whether the bond enjoys any state tax benefits. Consider consulting a tax professional before buying a muni.
• Know a bond’s call provisions. Call provisions allow the issuer to retire the bond before it matures. You can find the call provisions in the Official Statement.
• Know what you are paying for your bond, which will be reported on your confirmation statement. Most bonds are sold without a commission—instead, the broker usually is compensated through a dealer’s spread, or profit, which is included within the price. If a commission is charged, this will also be reported on your confirmation statement.
• Review your confirmation statement to be sure the information is accurate and in line with what you were told by your broker and contained in the Official Statement.

Investing in fixed income oriented investments, like municipal bonds, has risks that should be explained to the investor.  Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately.  At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

While the reverse convertible note may pay an attractive rate of interest, the principal invested is subject to significant market risks of the underlying stock.  Reverse convertible notes are not just another type of bond.

The SEC investigation is examining whether Wall Street brokerage firms:

• Failed to adequately disclose the risks and fees to investors;
• Failed to disclose potential conflicts of interest; and
• Improperly marketed and sold these notes to investors.

 An example of the problems with reverse convertible notes is demonstrated by a note based on the performance of the stock price of TiVo, the recording device maker.  The total return on the TiVo notes was less than $600 per $1,000 invested, i.e. a negative total return of -40%.

While reverse convertible notes may be an appropriate investment for investors looking for higher income, they are complex, expensive products that are subject to the risks associated with owning equities. 

Investing in investments, like reverse convertible notes, has risks that should be explained to the investor.  Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately.  At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

What Are Exchange-Traded Funds?

ETFs are typically registered investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. (Some ETFs that invest in commodities, currencies, or commodity or currency-based instruments are not registered as investment companies.) Unlike traditional mutual funds, shares of ETFs typically trade throughout the day on a securities exchange at prices established by the market. ETFs have evolved over the years, becoming more complex. Investors considering ETFs should evaluate each investment closely and not assume all ETFs are alike. In the last few years, a number of leveraged and inverse ETFs have been introduced to the market that are very different from the traditional variety of ETFs.

What are Leveraged and Inverse ETFs?

Leveraged ETFs seek to deliver multiples of the performance of the index or benchmark they track. Inverse ETFs (also called “short” funds) seek to deliver the opposite of the performance of the index or benchmark they track. Like traditional ETFs, some leveraged and inverse ETFs track broad indices, some are sector-specific, and others are linked to commodities, currencies, or some other benchmark. Inverse ETFs often are marketed as a way for investors to profit from, or at least hedge their exposure to, downward moving markets.

Leveraged inverse ETFs (also known as “ultra short” funds) seek to achieve a return that is a multiple of the inverse performance of the underlying index. An inverse ETF that tracks a particular index, for example, seeks to deliver the inverse of the performance of that index, while a 2x (two times) leveraged inverse ETF seeks to deliver double the opposite of that index’s performance. To accomplish their objectives, leveraged and inverse ETFs pursue a range of investment strategies through the use of swaps, futures contracts, and other derivative instruments.

Most leveraged and inverse ETFs “reset” daily, meaning that they are designed to achieve their stated objectives on a daily basis. Their performance over longer periods of time—over weeks or months or years—can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time. This effect can be magnified in volatile markets.

Investing in ETFs, like inverse leveraged ETFs, have risks that should be clearly explained to the investor. Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately. At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice. We invite you to call us to discuss your rights and remedies under the law.

Auctions were once held every 7 to 35 days by the brokerage firms that dealt in auction rate securities, but because of the deteriorating mortgage lending crisis and its effect upon the financial markets, auction rate securities auctions ground to a halt in February 2008.  The failed auctions resulted investors losing liquidity and being unable to sell or if they were able to sell, the investor incurred a large loss.

Many investors who lost money when the auction rate securities market collapsed in 2008 have been made whole by regulatory settlements and redemptions.  However, other investors have not have recovered and are still holding on to illiquid securities.

It has been almost three years since the collapse of the market.  Investors who are still holding auction rate securities should be aware that the statute of limitations may bar claims as untimely.  Most cases involving auction rate securities can be brought under multiple legal theories such as  fraud, negligent misrepresentation, negligence, breach of fiduciary duty, and breach of contract. While the statute of limitations may bar one claim, there may still be time to file a claim under other theories.

Investing in fixed income oriented investments, like auction rate securities, has risks that should be explained to the investor.  Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately.  At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

Risk tolerance is the degree of uncertainty that an investor can handle in regard to a negative change in the value of an investment. Risk of loss of principal is the primary risk concern for investors but there are other risks to be considered such inflation risk, interest rate risk, credit default risk, liquidity risk and others that influence an investor’s assessment of an investment.

Most investors think of risk in terms of what is the possibility that I will lose some of my money over time after purchasing an investment. Risk and return tend to work together. The higher the level of risk that greater potential gain or loss on the investment and the lower the level of risk generally equates with the lower potential gain or loss.

An investor’s risk tolerance varies based upon age, investment experience, net worth, income, investment time frame, investment objective, liquidity needs, and other factors. Risk tolerance tends to be viewed in categories such as conservative, moderate, or aggressive. Generally, investors with a conservative risk tolerance are adverse to loss of principal and tend to have high need for liquidity in their investments. For example, many retirees have a conservative risk tolerance because they have limited resources for income, need to access funds for health care and other living expenses, and generally do not have time to recover from large losses sustained in their retirement account.

Conversely, investors that are employed have many years of work ahead of them.  They have income, some savings and insurances coverage and therefore may be less adverse to the risk of loss of principal. These investors may pursue moderate to aggressive risk as appropriate with their investment objectives and financial goals.

There are risk tolerance questionnaires available from financial advisors and on the Internet. When establishing an investment account, you and your advisor should have a discussion about your risk tolerance and how to it effects your investment objective.

In addition to selecting the appropriate risk tolerance and investment objective, investors and their financial advisor should discuss other types of strategies to reduce the risks associated with investing in securities. Look for my next blog post on risk management strategies.

Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately. At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

Investors realize losses on investments for a variety of reasons. The risk of loss from an investment is realized because of poor investment decisions, changes in the economic market circumstances, or fraudulent and negligent advice. Investors can lose money as direct result of unethical and wrongful conduct of their financial advisors who abuse the trust and confidence of their clients. Negative financial markets expose the investment fraud and wrongful conduct of financial advisors. Whether the financial advisor is recommending unsuitable investments, making false statements, omitting material information or simply acting negligently, the end result is sustained investment losses. There are several types of inappropriate conduct that may constitute a viable investment loss claim: Ask yourself these questions:

• Did your advisor tell you about the different types of risks associated with the investment? Was information withheld or not disclosed?
• Was the recommended investment aligned with your investment experience, investment objectives, and risk tolerance?
• Did your advisor discuss and implement a risk management plan to reduce the risks arising from your investment portfolio?

If your answers to these questions raises concerns, you may have a valid claim against your financial advisor or brokerage firm. Investment fraud can and does affect all types of investors.  Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately. At Crary Buchanan, we provide consultations concerning investment fraud and negligence arising from improper financial advice.  We invite you to call us to discuss your rights and remedies under the law.

Many investors and financial advisors get caught in the chase to obtain higher yield on their investments. Yield refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. Simply put, yield is the income return on an investment.

Whether the investor is pursuing a higher dividend yield on a stock or a higher coupon yield on a bond, with higher yields come greater risks. Usually, the higher yield is an indication that there is increased credit risk, among other risks, associated with the ability of the company to pay interest or dividends on the security.

There are mutual funds and other types of investment products that seek to obtain higher yield from the portfolio’s holdings. The high yield or yield plus strategy usually involves holding a mix of high yield securities like mortgage back securities, high yield corporate bonds (sometimes referred to as “junk bonds”), and dividend paying stocks.

The SEC recently charged Charles Schwab with making misleading statements and deviating from the concentration policy of the Schwab YieldPlus Fund.

The Schwab YieldPlus Fund is an ultra-short bond fund that, at its peak in 2007, had $13.5 billion in assets and more than 200,000 accounts, making it the largest ultra-short bond fund in the category. The fund suffered a significant decline during the credit crisis of 2007 and 2008. Its assets fell from $13.5 billion to $1.8 billion during an eight-month period due to redemptions and declining asset values.

Investing in high yield oriented investments has risks that should be explained to the investor. As the Schwab YieldPlus Fund shows, investment strategy drift combined with dramatic changes in market conditions can result in significant losses. Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately. At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice. We invite you to call us to discuss your rights and remedies under the law.

Welcome to my securities law blog. As an experienced securities litigation attorney and former financial advisor, I am writing to educate and provide information to investors, financial advisors, and others about the financial services industry.

The blog provides information on investment advisory services and their regulation. In my posts, I will cover three main areas:

• financial advisor and client relationships
• investment and insurance products
• resolution of disputes arising from the sale of investment and insurance products

I became interested in these subjects when I was a registered representative who provided financial advice on insurance and investment products. As an attorney, I have represented individual investors, financial advisors, and financial institutions in disputes involving claims for breach of fiduciary duty, churning, discretion, ponzi scheme thefts, unsuitability, unauthorized trading, and others claims.

I have worked with and know some of the finest lawyers representing investors and the industry, and serving as mediators of securities litigation. I am a former member of SIFMA – Securities Industry and Financial Markets Association, a securities industry organization.

Using my investment and legal experience and background, I will provide readers of this blog with a better understanding of how the profession of investment advisory services works and how the regulatory framework seeks to protect investors and provide for an efficient dispute resolution process.

I look forward to your comments, suggestions and questions.