The Financial Industry Regulatory Authority (FINRA) ordered a Royal Bank of Canada (RBC) to pay $1.43 million to resolve charges it sold certain high-yield securities, known as reverse convertibles, without determining they were suitable for the investors they sold them to.
The settlement, which was first announced last April, includes a $1 million fine with an additional $434,000 in restitution for the investors. As is typical in regulatory settlements, RBC neither admitted nor denied wrongdoing in agreeing to settle the FINRA allegations.
Also known as reverse exchangeable securities (RES) or reverse convertible notes (RCN), reverse convertibles typically consist of interest-bearing notes in which the repayment of principal is dependent on the performance of an unrelated asset, such as a basket of stocks or other securities. The RES carry high yields because investors risk not recouping their principal if the unrelated asset's value falls below a certain "knock-in" or "barrier" level.
FINRA said that between 2008 to 2012, RBC executed more than 100,000 reverse convertible transactions in at least 5,000 customer accounts. However, the firm did not make the required reasonable basis suitability analysis to determine if the securities were consistent with their clients' goals, income level, net worth and prior investment experience.
This lack of suitability analysis, led to $1.1 million of losses on 364 reverse convertible transactions in 218 accounts belonging to customers for whom the securities were unsuitable. RBC had already paid some customers to settle a class-action lawsuit, and FINRA said it ordered restitution to the remainder.
Lack of suitability claims may arise from a lack of attention on a stock broker’s part, but may also arise from intentional manipulation for personal gain. In both instances, you need an experienced Florida stock market attorney on your side as soon as possible to ensure your losses are not compounded.
The Florida securities fraud attorneys at our firm have a combined eight decades of experience helping victims of stock broker fraud and error. We would be happy to meet with you free of charge to discuss your case and help you determine if you have cause to take legal action.
Please contact us today to schedule a free consultation with one of our experienced Florida securities fraud lawyers.