It seems small retail investors are still a glutton for punishment. A number of retail investors learned a harsh lesson last year when the convertible feature of their reverse convertible bonds kicked in and their high yielding bonds morphed into rapidly sinking equities. There are certain varieties of structured products that retail investors can take issue with because they weren't fully aware of a seemingly minor structural mechanic that came back to bite them. This isn't one of them. Even by retail investor standards, the key mechanic, the knock-in level, is spelled out clearly.
An 85 year old retired radiologist has filed a complaint with FINRA looking to recoup $75k in losses he suffered from his reverse converts. This is entering some seriously dangerous territory. If we're going to allow selective investor financial amnesia to qualify as evidence of wrongdoing by banks, structured products will be nothing more than a winning lottery ticket for retail investors.
"I had no idea this could happen," says Dr. Batlan, a resident of Clifton, N.J. "I have no desire to own Yahoo stock or the others."
Reverse Converts: A Nest-Egg Slasher? [WSJ]
Update: Mr. Batlan's law firm, Zamansky & Associates, is reporting that the Citi broker who purchased $300k in ELKS allegedly did so without his authorization.
Reverse Convertibles and the Cautionary Tale of Dr. Batlin [Zamansky.com]
Posted by guest , Jun 16, 2009 10:19AM
Hey there, Greg!
Posted by gatzzb , Jun 16, 2009 10:19AM
Retail investors are the proverbial Washington Generals to Wall Street's Globetrotters...
Posted by guest , Jun 16, 2009 10:19AM
Greg, please, the senior is filing a complaint with FINRA. How far is that going to go? Not very far at all.
If this makes you afraid of selling "stuff" to seniors, stop selling "stuff" to seniors. Find other targets.
Posted by guest , Jun 16, 2009 10:26AM
So today, not understanding reverse convertibles is "selective amnesia" but yesterday, not understanding that a note is an obligation of the issuing bank subject to credit risk because the note has a principal protection feature is a reasonable mistake that anyone could make? Do us a favor and keep your retarded opinions to yourself.
Posted by guest , Jun 16, 2009 10:41AM
Greg, keep up the good work. You are very talented.
Posted by Ben_H , Jun 16, 2009 10:42AM
@4
Seems different to me. You could have a principal-protected note where the issuer is a bankruptcy-remote SPV or is secured with Treasuries or whatever. It's surely dumb for an investor not to do the work to figure out who is offering the principal-protection, but not inconceivable by any means. On the other hand, how exactly can a sentient human buy a reverse-convertible and not know that one can end up with stock? Why is YHOO mentioned? Why is your coupon 11%? This geezer's looking for a litigation do-over, seems to me.
Posted by Anal_yst , Jun 16, 2009 11:08AM
@4
WTF are you talking about? Structured products very clearly spelled-out the risks you described, in large-font on page 1 of the offering material. Also, ELKS and other sort of products where clients can end up owning crap equities spelled these out similarly.
In both (and most) situations, client's were more focused on the pitch, and on the upside, than in giving a rat's arse about the downside. Just another example of failure to live with the consequences of your actions when you try to pin the blame on someone else.
Posted by guest , Jun 16, 2009 11:10AM
Reverse convert bonds = underlying bond + sale of put. I know you don't learn that shit in med school, Doc, but this shit is a lot simpler than dissecting cadavers or what have you.
Posted by guest , Jun 16, 2009 11:12AM
@6, not understanding that a Lehman note, whether principal protected or not, is a bond subject to the credit of Lehman means that you don't know what the word "note" means in a securities context. Thinking that maybe a Lehman note is issued by an SPV and not Lehman seems kind of hard to do when the note is titled as a Lehman note and not a a Lehman Financial Trust note or some other such thing. If you can't figure that out, you have absolutely no sophistication with regard to securities. Not understanding how a reverse convertible actually works seems a lot more plausible - you may know it's a note, you may knwo that it's paying a yield, you may know the yield is related to the named underlying, but you may not realize that when it knocks in, the underlying gets put to you.
Posted by InfiniteGuest , Jun 16, 2009 11:13AM
@Anal, you know, you don't win selling derivatives to civilians. Doesn't matter what's in the term sheet.
Welcome back, Ben_H.
Posted by guest , Jun 16, 2009 11:14AM
7 Did the large type say "YOU CAN END UP OWNING CRAP EQUITIES"? Didn't think so. So crawl back into your hole anal boy.
Posted by guest , Jun 16, 2009 11:25AM
@10, awesome handle there, btw
"...."
Posted by guest , Jun 16, 2009 11:25AM
What part of ANUS! dont you understand
Posted by Anal_yst , Jun 16, 2009 11:32AM
@11
Yes it did jackass, stfu, back to Yahoo
Posted by guest , Jun 16, 2009 11:45AM
Make mine unstructured please.
Posted by guest , Jun 16, 2009 2:05PM
5 = gregs mom
Posted by guest , Jun 16, 2009 2:06PM
nice pic greg!
Posted by guest , Sep 22, 2009 12:15PM
If you don't want to get sued, stop producing misleading products and selling them to gullible small retail investors. It would have been much cheaper, and had a much larger upside, had the people in question purchased an out of the money put, and a out of the money call, as well as underlying bonds of the entity in question. But, then, that wouldn't mint illicit money for the banks, would it?
In truth, JP Morgan, Goldman Sachs, Morgan Stanley and the other PPT banks are the same entity, along with the Federal Reserve they all use as a slush fund. They all work together on manipulating the markets, and knew very well that market support was going to pulled out in the referenced time frame. They also knew that the only thing pumping prices up when the products were sold was the slush fund, which was buying index futures, and intervening in the cash market for securities. So, they sold these fraudulent products, knowing full well they would never need to pay out on huge yields. Reverse convert notes are a fraud.
Not only should these companies and the individuals within the companies who are responsible for putting these fraud together, be sued...you people need to be dragged to a new set of guillotines, and finished off. Naturally, you would get a quick but fair trial.
Posted by guest , Sep 22, 2009 12:16PM
If you don't want to get sued, stop producing misleading products and selling them to gullible small retail investors. It would have been much cheaper, and had a much larger upside, had the people in question purchased an out of the money put, and a out of the money call, as well as underlying bonds of the entity in question. But, then, that wouldn't mint illicit money for the banks, would it?
In truth, JP Morgan, Goldman Sachs, Morgan Stanley and the other PPT banks are the same entity, along with the Federal Reserve they all use as a slush fund. They all work together on manipulating the markets, and knew very well that market support was going to pulled out in the referenced time frame. They also knew that the only thing pumping prices up when the products were sold was the slush fund, which was buying index futures, and intervening in the cash market for securities. So, they sold these fraudulent products, knowing full well they would never need to pay out on huge yields. Reverse convert notes are a fraud.
Not only should these companies and the individuals within the companies who are responsible for putting these fraud together, be sued...you people need to be dragged to a new set of guillotines, and finished off. Naturally, you would get a quick but fair trial.