Autocallable Notes and Broker Negligence: Are Your Losses Recoverable?

Have you suffered investment losses in autocallable structured notes? The securities negligence and fraud attorneys at Stock Market Fraud Law Firm are currently investigating and pursuing claims against banks and brokerage firms for autocallable note (“autocalls”) sales. If you believe you were a victim of investment fraud or broker misconduct, it is imperative to take action prior to a statute of limitations or arbitration eligibility bar prevents pursuing compensation.  

Our firm has represented nearly a thousand individual investors in a variety of broker and brokerage firm-related misconduct claims in the Financial Industry Regulatory Authority (FINRA) arbitration forum.

What Is an Autocallable Note?

Autocallable products are structured products that are automatically called by the issuer prior to maturity if the performance of one or more reference assets meets prespecified conditions at a certain time during the term of the product. For example, if the reference asset is at or above its initial level on a specified observation date, the product is automatically called. Payment upon autocall varies, with some products offering full return of principal and others exposing investors to loss of principal. The autocall feature can be found in a variety of different structured product types, such as reverse convertibles. Brokers and financial advisors are often motivated to recommend autocallable notes because they offer higher yields (and high commissions). However, these investments can be very speculative and are not typically suitable for individual investors with a moderate or conservative risk profile.  Most problematic, many of these notes are marketed to bank clients who have certificates of deposit (CD) maturing. They are unwittingly referred by bank employees to brokers and financial advisors employed by broker/dealers with a relationship with the bank. These individuals are licensed to sell securities and market the autocallable structured notes as being the same or similar to the maturing FDIC insured CD when nothing could be further from the truth as characteristics listed below demonstrate.

Risks of Autocallable Notes:

Autocallable notes contain several risks to investors, including: 

Illiquidity

These products are inherently illiquid (can’t be readily sold on a major exchange).  As such, structured notes are primarily designed to be buy-and-hold investments. While some notes have relatively short maturities, measured in months, others might extend out for 10 years or more. As stated, since Autocallable notes are not listed on an exchange, and there’s no guarantee of a secondary market for liquidating them in the event of a need to have ready access to cash.

Market Risk

While some structured notes provide for the repayment of principal at maturity, many autocallable notes do not offer this feature.  In most instances, the performance of the linked asset or index may cause the investor to some or all, of his/her principal.  Depending on the nature of the linked asset or index, the market risk of the structured note may include changes in equity or commodity prices, changes in interest rates or foreign exchange rates, or market volatility.

Pricing

Prior to the issuance of a structured note, the issuer provides an initial estimated value of the note. This value is based on an internal valuation model that prices the embedded components used to structure the note’s payoff. The initial estimated value is generally less than the price of the note, meaning that you’re investing an amount per note that exceeds its estimated value. 

Credit Risk

Structured notes are unsecured debt obligations of the issuer, meaning that the issuer is obligated to make payments on the notes as promised.  These promises, including any principal protection, are only as good as the financial health of the structured note issuer.  If the structured note issuer defaults on these obligations, investors may lose some, or all, of the principal amount they invested in the structured notes as well as any other payments that may be due on the structured notes.

Autocallable Note Investigation and Representation:

Stock Market Fraud Law Firm attorneys are currently representing investors who have purchased Autocallable structured notes issued by Goldman Sachs Financial Corp (GS) and Citigroup Global Markets Holdings, Inc. (CGMI). We are also investigating Autocallable structured notes issued by other financial institutions including:

• Barclays Bank
• BMO Bank
• Bank of America
• Credit Suisse
• Others

Talk to a Securities Negligence and Fraud Lawyer for FREE 

If you have purchased an autocallable structured note(s) and believe the product was misrepresented at the point of sale, please contact our office online or at (888) 513-3010 for a FREE case evaluation. We serve clients throughout the state of Florida and Nationwide.

We represent investors on a contingency basis so there is no fee or cost unless there is a recovery. Thank you!