Investment Fraud Glossary

Practice Areas Financial Product Failures Investment Fraud Glossary

Learn More About Investment Fraud Terms

Manhattan-based Zamansky LLC is a national securities law firm that protects the rights of investors. Our investment loss lawyers recover losses for investors who have been negligently or fraudulently advised to invest in junk bonds.

Terms Used in the Junk Bond Market

These terms are commonly used in discussions about junk bond investments:

• Bond rating: The three credit rating agencies — Moody’s, S&P and Fitch Ratings — rate bonds and classify them as investment and non-investment grade.

• Breach of fiduciary duty: Stockbrokers have a fiduciary duty to act in the best interests of their customers. When brokers act in a manner adverse to the interests of their clients, they have breached this legal duty.

• Broker fraud: Broker fraud describes an intentional action that violates SEC or FINRA rules, such as churning, trading without authorization or purposely making unsuitable investments in order to generate more profits or commissions for the broker or brokerage firm.

• Broker misrepresentation: The broker misrepresents a material fact related to the investment.

• Broker negligence: The broker unintentionally acts in a manner that is adverse to the investor’s interests.

• Default risk: A bondholder that risks being unable to pay its debts to creditors and investors has a high default risk. The bondholder generally offers higher returns to offset the higher risk of default.

• Downgrade: A negative change in a security’s rating indicates a higher risk of default and may result in the downgrade or reclassification of the instrument as a non-investment grade junk bond.

• Fallen angel: A bond whose value has fallen substantially or whose investment grade rating has fallen to non-investment grade is often referred to as a fallen angel.

• High yield, high risk: Junk bonds have high rates of return, but also have a high rate of default.

• Investment grade bond: The credit rating firms have rated the instrument as having low risk of default.

• Junk bond: A high-yield, non-investment grade, fixed-income instrument that has a high risk of default is often referred to as a junk bond.

• Non-investment grade bond: The credit rating firms have rated the instrument as BB/ Ba or below and so it is considered a non-investment grade bond or junk bond.

• Unsuitable investment: A high-yield, high-risk investment may be unsuitable for the client’s risk tolerance, financial situation and goals. For example, junk bonds would likely be considered an unsuitable investment for a retiree on a fixed income or parents saving for their child’s education.

• Risk tolerance: The degree of variability in investment returns that a particular investor is able to withstand is her or his risk tolerance. A conservative investor might have a low risk tolerance that makes junk bonds an unsuitable investment.

Contact Our Wall Street Securities Law Firm for Junk Bond Loss Recovery

Wall Street-based Zamansky LLC helps clients nationwide to recover junk bond investment losses. Schedule a free, confidential evaluation to discuss your case in detail with our securities litigation lawyers. We respond to all inquiries within 24 hours.