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Financial products are typically popular with investors when they provide an interesting value proposition and demonstrate strong growth potential. From individual stocks and bonds to more complex financial instruments, customers typically make an investment decision based on the potential to make a profit.
However, the nature of investing in the market means that when everything operates transparently and fairly, there is no guarantee of success. A change in business model or a negative rumor can cause a financial product to fail, and if it happens quickly enough, investors may have no opportunity to sell or lock in any profit before the worst happens.
The market has its ups and downs by its very nature, and the value of an investment can fluctuate based on all sorts of factors. However, such fluctuations are not always as innocent as they might appear.
When a financial product fails, it is not unreasonable for an investor that has lost out, as a result, to question whether it was part of the standard market process or if someone involved in the investment may have broken securities regulations.
A significant drop in the price of an investment, or even a total collapse, may be a result of various points of failure. If you believe that a financial advisor, broker, or anyone else involved in the specific product failure has misled you or otherwise breached their duties, you may have a genuine claim involving litigation or arbitration.
Speak to an Investment Loss Attorney from Zamansky LLC Today
Neither litigation nor arbitration should be taken lightly, and one of the first priorities for anyone that believes they have been involved in a financial product that has failed due to greed, mismanagement, or a breach of fiduciary duty should speak to attorneys from a reputable law firm at the earliest possible opportunity.
Here at Zamansky LLC, we operate from the very heart of Wall Street and boast unrivaled experience in handling cases related to financial companies and professionals alongside the broader market.
While there may be a legitimate reason behind the failure of any financial product, we leave no stone unturned as we seek to discover the root cause behind the drop in the value of a business or assets. Our team will work to gather evidence and, with permission, access customer records to ensure the formation of a true and clear picture of the impact a product failure has had and the likelihood of something untoward being involved.
The process of litigating a financial product failure can be long and arduous without the right support, which is why we always seek to deliver first-class, personalized services to every client.
The attorney-client relationship can begin with a simple phone call. The initial consultation is free, confidential, and without obligation as we collaboratively determine if there is a case to answer and who is responsible. From there, you can rely on our law firm to provide full transparency around all legal services. We are as interested in success as you are, which is why we regularly take cases on the basis of success fees.
Whether you are ready to commence legal proceedings based on your own evidence and research, or you wish to consult an experienced attorney on the details of your case and the next steps, call our offices now at 212-742-1414.
What is a Financial Product Failure?
To understand financial product failure, it is first important to understand what financial products are. While traditional assets, such as bonds, cash, and equities, may be considered financial products, many investors consider the term as applying to package deals, often created by financial companies that are subsequently marketed as being better options for their customers.
It is any instrument that enables consumers to make a financial investment, borrow money or save money, and it is not restricted solely to the large financial institutions of wall street. Mortgages, loans, and credit cards are all financial products. However, as they typically involve customers receiving money from an institution, they are not always considered alongside products that consumers can invest in with a focus on substantial future profit.
A financial product failure may involve a company going bankrupt, a fund shutting down or an asset becoming worthless. The true definition of failure typically depends on the individual investor. However, these failures are typically quantified by a reduction in benefits, costs associated with the investment, and the shrinking valuations of assets.
Why Might a Financial Product Fail?
A financial product can fail for all manner of reasons, with some being more innocent than others. As noted already, the market tends to deliver a price that may incorporate numerous factors, spanning current cash on hand, future growth prospects, the latest news, and more. If any of these factors inspire investors to sell, there can be a natural downward price movement.
Of course, this is all based on the assumption that a financial product’s valuation has been reached legally and without interference. It is vital for any investor to be aware that there are several points of failure with most financial products. For example, even with a simple stock on the open market, investors are reliant on their advisor or broker to make an honest appraisal of the asset’s suitability and prospects, and also on the board of directors from the firm to ensure that they continually strive to deliver the best possible value to shareholders.
If anything goes wrong with an investment based on the actions of others, the companies and individuals involved may be liable to pay back any losses that can be attributed to something beyond standard market factors.
Financial Product Failures That Breach Securities Regulations
Most brokers and financial advisors, along with anyone in a position of power with any commercial enterprise, have a duty to those with an interest in their success. For the former, that means giving advice and providing services that put the best interests of the customer first. For the latter, they must use their position to make sound business decisions, giving every customer that holds assets related to the business the best possible chance of profiting from their investment.
Your financial fraud attorney will be able to provide direct insight into the nature of your complaint, should you have one, based on industry experience and a broad knowledge of activities related to securities.
There are several common examples that may enable an individual investor to determine whether the services they have received from anyone involved in their investment decisions have been what they might reasonably have expected.
The Product was Mis-sold
For brokers and advisors, in particular, it is vital to understand whether the services they provided in recommending securities and monitoring the market gave each customer the best possible chance of enjoying a positive return on their investment.
Financial professionals should not be swayed by marketing or commissions. Instead, they should have a process in place to ensure they have a robust understanding of each customer based on the idea that every individual has different goals and risk tolerances.
While these financial professionals are fully entitled to receive compensation for their work through commissions, direct payments, and other benefits, their sales have to be driven by a genuine interest in the success of the clients they serve.
If a financial product fails and those they advise have to pay a cost as a result, such as selling at a loss, then the adviser may be in breach of their fiduciary duty.
The advisor or broker may remain liable if they were not directly at fault. Financial institutions on Wall Street put a lot of time and effort into creating financial products, then hand them over to sales and marketing teams to acquire as many customers as possible. While it is reasonable to expect that the better a financial product does, the higher the fees earned, this cannot single-handedly prevent failures.
If you have contracted a professional to interpret these products and make recommendations, they should be comfortable with assessing each product on its own merits. Ideally, they will be entirely immune to any sales and marketing efforts and make decisions on whether to recommend a product to a customer without bias or undue influence.
A Lack of Due Diligence
It is not beyond the realm of possibility that an industry advisor may have been misled in their own right. For example, a financial product launched with great fanfare and a surge of initial demand is bound to catch the eye. Typically, it is far better to be early than late when looking to capitalize on any investment opportunity, as the market is relatively quick to correct itself when hype drives the price up without the fundamentals to back it up.
Along similar lines to the point above, brokers are not immune to the marketing efforts of major financial product providers, but the onus remains on them to put the customer first.
If a finance professional elects to recommend a product to a customer without an adequate idea of what they are selling, they may be liable for any failures caused by their lack of understanding. This is because a breach of securities regulations does not necessarily have to be malicious, especially if someone that promotes themselves as a professional fails to meet basic expectations among users of their services.
Inadequate Supervision
Most brokers are not only involved in selling their favored investment opportunities to a customer. They also have a duty to put a process in place to monitor any causes for concern. A failure to put these checks in place can be considered negligent. If the process exists, but the business elects to ignore its own procedures, the case can quickly become even more serious.
As touched on previously, an advisory business has a responsibility to the customer not only when marketing its favored products but in ensuring that users of their services are adequately protected against failures that could realistically have been identified in advance.
Ponzi Schemes
One category of financial product that is virtually doomed to failure at some point over its lifespan is the famous Ponzi scheme. In the securities world, they are virtually the definition of being too good to be true, but many investors struggle to see past the incredible price gains, even if the business fails to deliver on basic market fundamentals.
Even a team of seasoned finance industry veterans can struggle to identify a potential Ponzi scheme until the typical warning signs begin to manifest. Nevertheless, they retain a duty to the customer to ensure that said customer is not the one to suffer in the event of this kind of financial product failure.
Legitimate Reasons for Product Failures
It is vital to speak to a financial product failure attorney when understanding failure and attempting to decipher why your money was lost. It is equally important to understand that financial products can fail without any malice on the part of a broker or financial adviser.
With that said, it is often possible to determine fault with the advice given if an investment or entire company failed, resulting in financial loss for consumers. While asset values rise and fall as part of typical market conditions, it is rare for a viable investment strategy to collapse quickly unless someone, somewhere, has broken securities laws in delivering on their promises.
Your lawyer will help you ascertain where securities laws were broken when there is cause for suspicion. It may be an adviser that was focused more on profits than growth, but it could equally be internal issues at a company.
Unrealistic Customer Expectations
Once again, the definition of failure varies depending on your perspective. Consumers may latch on to a financial product in the belief that it is a sure thing or could never possibly fail. If those expectations are built on buzz, hype, and social media chatter, it is possible that a firm did nothing wrong in its failure to reach the levels of success that consumers might have expected.
Of course, if those expectations were based on marketing and advice from financial professionals, who did so in pursuit of their own profits rather than what’s best for their customers, it becomes an entirely different conversation.
A Company Failed Due to A Flawed Business Model
As one of the largest and most valuable companies in the world, Google is a brand that can afford to make some mistakes. Beyond their core advertising model, they have the market share and profitability to take chances. However, for every mild success, such as Google Glass, there may be services or an idea like Google Stadia that never quite reaches the revenue and sales levels required to make it viable.
Brands of all sizes find themselves regularly taking chances to boost revenue, but judging the demand for something is never an exact science. If you own equity in a company that spends millions of dollars marketing a product that customers have no plans to support, they may not have the reserves of a behemoth like Google to change direction without significant losses to investors.
As long as the management of the business believed they operated in the best interests of investors, their lack of success may be disappointing, but it is not in breach of securities laws.
Market Conditions
Many believe that the financial markets are cyclical, at least to a certain extent, and there are numerous theories throughout the financial industry designed to predict bull and bear markets, upcoming financial crashes, and more. However, even the most highly-regarded theories are unable to predict the future, and there are countless cases of financial products having launched into what quickly became a perilous financial environment.
To a consumer on one side of a deal, it might appear to be a failure, but the failure alone cannot necessarily support a legal claim without additional evidence.
Financial Products That May Be Highly Susceptible to Failure
As discussed already, there are numerous reasons why a financial product might fail. Generally, the more complex a product, the more points of failure there might be, and the more likely that the product in question will fail to deliver.
It is vital for investors to remain vigilant, even if they trust their advisers beyond any doubt. However, if you have been recommended either of the following products or are already invested, it makes sense to pay close attention to the price and market activity.
If you have invested in any of these products and believe that not everything is as it should be, call us today at 212-742-1414.
Steepeners
Steepeners rank among the most complex financial products available to retail investors. Also known as steepener notes, they enable investors to speculate on an interest rate curve. If that curve steepens, as the name suggests, then investors can benefit from incredible price growth.
However, these investments are inherently risky, and there is a substantial likelihood that they will not meet the risk tolerance of most private individuals. Those risk levels are also reflected in the commissions paid to brokers and financial advisors, who can enjoy significant returns when they convince clients to invest.
Such is the complexity and risk of steepeners that FINRA was moved to issue specific guidance on their recommendation and sale. While they remain entirely legal, FINRA members are encouraged to carry out additional due diligence on products and clients alike before making any such recommendation.
Structured Products
Structured products are another complex asset class that was specifically designed to give retail investors greater access to derivatives. They are pre-packaged and, like steepeners, typically involve speculating on interest rates.
In addition to their inherent complexity, they, too, can be risky. The nature of the product means that they typically pursue alternative payment features. They also often lack liquidity and may not be FDIC-insured due to the nature of their structure.
Beyond that, investors may be tied into such investments for longer than they might have expected, as they typically pay out upon maturity.
Examples of Financial Product Failures
One of the best ways to understand whether you may have been the victim of a failed financial product is to understand some of the more notable examples.
While failures do not always reach the mainstream news, they can have a significant impact on financial industries and cause ripple effects that influence even those that may not have been directly invested.
GPB Capital Holdings
GPB Capital Holdings is a private equity firm that is currently the subject of civil fraud charges by the Securities and Exchange Commission. The company allegedly defrauded over 17,000 investors, and the SEC has likened the operation to a Ponzi scheme, with estimated potential losses totaling in excess of $1.6 billion.
Investors hail from across the US, and numerous claims have been filed against the firm in dozens of jurisdictions. The firm ceased capital-raising activities in 2018, having opened in 2013, and even the FBI has been involved in establishing its actions and finding potential redress for investors.
There is still time to take action against GPB to recover any investment losses, and you can speak to a Zamansky LLC legal expert about your next steps at 212-742-1414.
GWG Holdings L Bonds
GWG L Bonds were considered high-risk investments throughout their lifespan, not least because they lacked both a credit rating and any form of insurance.
The bonds were available between 2012 and 2021, but GWG Holdings filed for Chapter 11 bankruptcy in April 2022. Net liabilities in L Bonds alone are estimated to be in excess of $1.3 billion, making them the largest contributor to GWG Holdings’ total $2 billion deficit.
GWG Holdings has publicly asserted that it is exploring options for restructuring, but many analysts believe that this is further bad news for L Bond investors.
Legal action has already commenced, and, as always, there is a time limit on new claims. If you hold L Bonds from GWG Holdings as part of your portfolio, call our legal team today at 212-742-1414 to discuss your options.
The UBS Yield Enhancement Strategy
Unsurprisingly, even the biggest names in finance are not immune to failure in their financial products. UBS is the world’s largest private bank and, in 2015, launched the Yield Enhancement Strategy under the UBS YES brand.
It was designed and marketed as a conservative investment strategy with minimal risk and stable returns. Essentially, it was touted as an investment strategy for the risk-averse that would protect their investment while still enabling it to grow.
The UBS YES was targeted at investors with a net worth of $5 million or more and reached $6 billion in assets under management at its 2018 peak.
While typical market conditions ensured that the strategy comfortably met its goals, turbulence in the markets ensured that it soon unraveled. Investors were promised modest returns of approximately 4%, balanced by the lack of risk. However, once the strategy’s exposure faced difficulties, that modest reward proved in no way worthwhile compared to the risk investors were compelled to take.
Many investors contend that they became the victims of misrepresentation. UBS YES magnified losses when the S&P 500 was down in 2018. Even when the S&P 500 came out ahead in 2019, UBS YES still posted a loss.
The COVID-19 concerns of 2020 put paid to any hope of recovery.
If you were sold UBS YES, you should speak to a first-class legal professional immediately. Call Zamansky LLC today at 212-742-1414 to discuss your options confidentially and without any obligation.
How to Spot a Failing Financial Product
Even when it comes to managed products, investors should keep a close eye on their capital to give them the best chance to discover potential failures before they have a significant impact on their assets. While there is every opportunity to recover losses and costs following a failure, many investors would prefer not to get into that kind of situation in the first place.
Essentially, selling when something does not necessarily add up can be preferable to heading to court or embarking on arbitration.
With that said, it is vital for customers to have someone to turn to when they suspect potential failure. After all, there is no guarantee that a firm will admit issues if contacted directly. That’s why we provide consumers and prospective clients with a transparent process that begins with a free, no-obligation consultation. Our lawyers will help you put your concerns into context based on vast previous experience and will help you to pay attention to further warning signs and performance issues that warrant further investigation.
There are a number of warning signs that we believe investors should be aware of so that they can act quickly if a price starts to fall or the long-term profitability of a financial product is threatened.
Benchmark Changes by Your Broker
If a financial product was mis-sold by a broker, the same financial professionals may end up becoming the primary point of failure for ongoing difficulties. From the perspective of the customer, if a broker or advisor is willing to hide the truth during the marketing and sales processes, they may be inclined to continue to do so. If the product they recommended is on the verge of failure, they may be even more inclined to do so in the belief that they are already in a bad situation and no longer have anything to lose.
One of the most common signs of a potential product failure involves a broker or advisor changing the criteria for success. If they marketed a financial product to a person on the basis that they could expect specific returns on their investment and the product has failed even to come close to that value, they might be inclined to set a lower benchmark.
This is another reason why every consumer should endeavor to keep a close eye on their investments and overall financial position. There is nothing wrong with assuming that a professional financial firm will operate in your best interests, but that does not mean that an investor needs to take every proclamation a company makes at face value.
Delays in the Publication of Account Statements and Financial Results
Some investors consider the provision of financial statements and accounts as an added bonus that they leave to their financial advisors. Others use them as an opportunity to regularly dive deeper into the performance of their investment, even when they have someone monitoring those investments on their behalf on a day-to-day basis.
If those statements are ever delayed, it may be cause for concern. There can be legitimate reasons for some companies to make late filings. They might not have all the information they need to publish a full and final statement for the period, or there may be internal discussions that legitimately prevent them from providing accurate information.
However, the frequent failure to provide any statements expected by customers and consumers may indicate a deeper issue with the company’s operations.
As a stakeholder, you are entitled to up-to-date information in order to support informed decisions around your portfolio. While there may be innocent explanations for the occasional delay, the failure to publish accounts and statements repeatedly can be cause for concern and may indicate that there is something to hide.
Delays in Withdrawals From Financial Products
One of the benefits of flexible financial products is that users can often take a hands-on approach unless contractually stipulated otherwise. Typically, a person can access their funds at any time or with a relatively short notice period.
If it was previously quick and simple to receive your funds but has become slower or even impossible to make a withdrawal, the financial product may be experiencing liquidity issues. In the most serious cases, such as Ponzi schemes, it may indicate that the promised capital is no longer even there.
Significant Drops in the Value of a Monitored Investment
If you pay someone to oversee your investments, they have a responsibility to deliver success to the best of their ability. While even the finest financial minds and brands cannot predict the future, it is reasonable to expect that they will have some form of insight into market conditions and their potential effects on customers.
Fortunately, honest brokers and advisors do not need to be able to predict the future. They will typically manage the holdings of customers in such a way that no solitary piece of bad news can have a crippling impact on an investor’s holdings.
This is achieved through a thorough understanding of a client’s investment goals and risk tolerance and the creation of products and strategies that incorporate diversification. Effectively, no individual portfolio or fund should ever fail entirely with the demise of one or two significant holdings.
If it does, then that is enough cause for suspicion on the part of an investor to consult a financial attorney on their options.
What Happens Following the Failure of a Financial Product?
Simply put, financial product failures typically result in significant losses for any consumer that opted to invest money into the product in question. What may have seemed like a robust value proposition at the time of investment might quickly become a sunk cost.
Not all investments make profits, and the same can be said of financial products. The key element is whether a financial adviser or other finance professional was truly open and honest about the product in question or if they ignored their fiduciary duty to clients in pursuit of greater commissions.
In long-term relationships, their duty to customers does not end with the initial investment either. Even experienced investors do not necessarily have to take responsibility for the potentially difficult decision to sell when it appears a product may fail, especially when they have appointed someone to provide support and monitor their investments.
Different investors have different definitions of failure. If an exchange-traded fund (ETF) loses money, that could be seen as a failure to some and part of the risk management process to others. However, if the fund shuts down entirely within five years of being launched and following aggressive marketing and initial success, there is reasonable cause to suspect foul play.
Having consulted a specialist lawyer, a viable case will seek to recover losses by way of litigation or arbitration.
The Financial Industry Regulatory Authority (FINRA)
If you have been negatively impacted by a financial product failure, there is every chance that you may find yourself in communication with FINRA – and it is highly advisable to speak to an attorney that works in your best interests before you do so.
Ultimately, FINRA answers to the Securities and Exchange Commission at a government level. However, they also provide a range of professional services to businesses involved in any US financial market. They are also obliged to ensure that those businesses operate fairly and regulate their day-to-day operations.
The majority of brokers serve as FINRA members, giving any customer that has a dispute with them the right to access mediation.
This can be quicker and more effective than litigation, especially with a skilled attorney on hand to oversee negotiations. A member of our team will be able to advise on the best course of action, depending on the nature of your case.
Speak to the Investor Lawyers from Zamansky LLC Today
If you are concerned that a failed financial product has had an effect on you as a customer and come at a cost to your financial well-being, you may have a case for litigation or arbitration. The financial world is complex, with numerous points of failure in the market, and there could be numerous reasons behind a drop in price or any other kind of cost resulting from investment advice.
Each case is different, which is why the lawyers from Zamansky LLC treat each on its own merits. We offer all prospective clients a free consultation with no obligation, ensuring we can build a comprehensive picture of the events that have taken place and deliver a sound strategy for resolving your issues.
With offices near Wall Street and in Miami, we invite anyone that has endured trouble in the markets to get in touch. Whether you’re in Seattle or South Carolina, we believe that every investor deserves access to the legal advice and expertise that can see them bring a successful case against brokers, advisors, and institutions of any size and level of influence.
Our team is standing by to help you make sense of potential financial crime, so call our offices today at 212-742-1414.