A Variable Rate Structured Product (VRSP) is a complex investment vehicle that places an investor in unnecessary risk but pays a high commission to the broker of the product. The financial incentive often causes advisors to place investors in such investments despite the investment being inconsistent with the risk tolerance of the investor. Such an action constitutes fraud and we can help recover losses in VRSP investments.
The investments are sold inappropriately if sold to moderate or conservative investors. VRSPs are high-risk structured products and pay interest at a fixed rate for an initial period, usually 1-3 years. After the initial period, the investments are not guaranteed to pay any interest. The recovery of the principal at maturity is based on the operation of complex, derivative items. So the principal is not secured. Additionally, a secondary market may not exist for VRSPs. This means that there may be little to no way to sell these investments after purchased.
Recent regulator action highlights the issue. On September 5, 2024, the Financial Industry Regulatory Authority (FINRA) entered into a settlement with Newbridge Securities concerning its unsuitable sales of VRSP investments.
Shortly thereafter, on September 18, 2024, Wedbush Morgan entered into a similar settlement with FINRA. Wedbush agreed to a $50,000 fine and to pay $77,736 to investors for losses. The charges were initiated based upon Wedbush’s sale of such investments to investors with low or moderate risk profiles. The regulator also found that a lack of supervision contributed to these fraudulent sales violations.
The U.S. Securities and Exchange Commission (“SEC”) issued a warning about these products back in 2022. It has become increasingly concerned about the sale of complex investment products to retail investors. These types of products use option strategies, investments tied to unusual indices, and other exotica. The securities industry has known of the risks associated with this investment vehicle for some time.
We represent investors nationwide and help them recover losses in such unsuitable investments.
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