The old adage (and I’m paraphrasing) those who don’t learn from their mistakes are destined to repeat them could be playing out in the bond markets. After the credit crisis and global market meltdown brought about by huge bets on subprime mortgage paper and structured finance nearly took down the global financial markets, investors are once again testing the high yield or junk bond markets seeking higher returns. According to a front page article in the September 20, 2010 issue of The Wall Street Journal, prices on high-yield paper hit the highest level since 2007, nearly doubling the yields found during the worst of the credit crisis.
This activity in the bond markets is a scary scenario and one that warrants attention. Investors lost billions of dollars on bond funds and structured notes that bet heavily on high-yield paper to ramp up returns. Often the funds were misrepresented as to their holdings leading to hundreds of FINRA arbitration claims filed on behalf of investors seeking compensation for their losses. Some of the funds that have been subject of those claims include the Morgan Keegan RMK bond funds, the Oppenheimer Funds Champion Income Fund, and the Wachavio/Evergreen short-term bond funds.
Also structured notes, such as the UBS Principal Protected, Partially Principal Protected and Rate Optimization notes have been the subject of allegations UBS brokers failed to disclose Lehman Brothers was in fact the underlying credit behind the notes and the principal was only good as long as Lehman Brothers viable. When Lehman Brothers filed for bankruptcy in September 2008, the investment in those notes was wiped out, much to the surprise and shock of many investors.
If you have lost money in a bond fund or structured note and believe the investment was not adequately disclosed as to holdings and risk, please contact our office for a case evaluation. Thank you.