Hardly a week goes by without a report that yet another financial institution has settled claims of selling improper investments to groups of investors, often including senior citizens. This week, the largest bank in Spain, Banco Santander, is reported to have paid $7 million directly to investors and $2 million to the Financial Industry Regulatory Authority ("FINRA") to settle claims that it improper sold high-risk reverse convertibles to elderly, retired investors.
Reverse convertibles are risky, high yield, short-term bonds that automatically convert to the stock of an underlying company's shares if the company's share price rapidly declines. In 2010, banks sold nearly $7 billion worth of these securities to U.S. investors.
According to the allegations, Banco Santander brokers not only sold reverse convertibles to conservative investors, they sometimes recommended that customers use margin to purchase the securities, which had the effect of increasing the risk of significant losses. Banco Santander is the most recent in a string of fines against banks for improperly selling reverse convertibles. Last year, a subsidiary of Royal Bank of Canada and a subsidiary of Ameriprise Financial were fined a total of $890,000 for similar practices.
Investors who have reverse convertible securities in their portfolios may want to consult with investment fraud lawyers to investigate whether they have a claim to recoup losses incurred by these investments.
