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Structured products are complex financial investments created by banks and other institutions. They often combine bonds, derivatives, and other financial tools into one package. These products are marketed as offering higher returns, added protection, or unique investment opportunities that are not available with standard stocks or bonds.
While structured products may sound attractive, they are not simple investments. They are highly customized, often difficult to understand, and can carry hidden risks. Many investors do not fully realize the dangers until it is too late and they have lost significant money.
If you lost money on structured products, contact Levin Papantonio today to discuss your options in a free, confidential, no-obligation Case Evaluation.
Structured products are investment products tied to the performance of underlying assets. These assets can include stocks, bonds, interest rates, or market indexes. Unlike buying stock in a single company, structured products are built to track complicated conditions, often with set triggers or payout rules.
For example, a structured product might promise a fixed return if a stock index stays above a certain level. But if the index falls, the investor could face steep losses. This design makes structured products attractive to banks that sell them, but dangerous for retail investors who may not understand all the risks.
Many investors are drawn to structured products because of their advertised benefits. Banks and brokers often promote them as offering “downside protection” or “enhanced income.” In some cases, they are marketed as safer than traditional investments, which appeals to conservative or retirement-focused investors.
Others choose structured products because they promise higher yields compared to bonds or CDs. With interest rates often low, these products may seem like an appealing way to increase returns while still having some level of protection. Unfortunately, these promises can be misleading.
One of the biggest risks of structured products is their complexity. Even experienced investors may struggle to fully understand the payout formulas, early redemption features, and derivative structures involved. This lack of transparency often hides the true level of risk.
Another major danger is liquidity. Structured products are not easily traded on the open market. If an investor needs to cash out early, they may only be able to sell at a steep discount—locking in financial losses.
Investors can lose money in structured products in several ways. For instance, if the underlying asset performs poorly, the structured product may lose value or even become worthless. These losses can be devastating for retirees or conservative investors who thought they were buying something safe.
Losses can also occur when investors are misled by sales practices. Financial advisors may push structured products without fully explaining the risks, leaving investors unprepared for potential losses. In many cases, investors are left shocked to discover they hold investments far riskier than they realized.
Contact our securities fraud team for a free case review.
Imagine a structured note tied to the performance of the S&P 500. If the index stays above a certain level, the investor earns 7% per year. But if the index falls below that level, the investor could lose principal. A sudden market downturn would erase years of expected returns.
Another example is a structured product promising “capital protection” with conditions. If the market stays within a narrow range, the investor’s principal is safe. But if the market moves outside that range, the protection vanishes, and the investor faces major losses.
Many investors who purchase structured products do so based on misleading sales pitches. Brokers may highlight potential returns but downplay or even hide the risks. They may present the investment as safe or guaranteed, when in fact it carries high levels of risk.
When this happens, investors may have a legal claim. If your broker or advisor failed to explain the risks, recommended unsuitable investments, or engaged in deceptive sales practices, you may be entitled to recover your losses from the broker misconduct through legal action.
Recovering losses from structured products is not simple. Banks and brokerage firms have deep resources and teams of lawyers protecting their interests. That’s why it is critical for investors to work with experienced securities and investment fraud attorneys.
A skilled lawyer can investigate whether your advisor misrepresented the product, failed to disclose risks, or violated securities laws. They can pursue claims through arbitration or litigation, holding financial institutions accountable and fighting to recover your losses.
At Levin Papantonio, our securities and investment fraud practice has decades of experience representing investors nationwide. We understand the tricks banks and brokers use to sell complex products like structured notes, and we know how to expose misconduct.
Our attorneys have recovered billions of dollars for clients against some of the largest financial institutions in the world. We take on powerful defendants and fight to level the playing field for investors who have been harmed.
Autocallable notes are one of the most common types of structured products sold to retail investors today. They are marketed as offering steady income through high coupon payments, but the reality is far riskier. These notes are tied to the performance of one or more underlying stocks or indexes. If those underlying assets fall below certain thresholds, investors can lose significant portions of their principal.
At first glance, autocallables look appealing because they promise above-market interest payments and some level of downside protection. But the protection is limited and often comes with strict conditions. Once an underlying stock or index dips below the “knock-in” level, the investor’s principal is at risk. In these cases, instead of getting their original investment back, investors may receive only the depressed value of the worst-performing stock in the basket.
Contact Levin Papantonio today for a free consultation and learn how we can help you recover.
Autocallable notes usually pay contingent coupons, meaning investors only receive the promised interest if the underlying asset stays above a set “coupon barrier.” If the asset falls below that level, the coupon disappears, leaving investors with no income. Issuers also design these notes with automatic redemption features: if the stock performs well, the note may be “called” early, paying investors their principal back plus minimal coupon payments.
This design heavily favors issuers like Morgan Stanley, Citigroup, JP Morgan, Goldman Sachs, and UBS—firms that have issued tens of billions of dollars in autocallables. The issuer can call the note as soon as conditions turn favorable for the investor, cutting off future coupon payments. But if the stock performs poorly, the investor is locked in until maturity, often facing devastating losses.
Examples of investor losses show how dangerous these notes can be. A series of autocallables tied to Lucid Motors and other tech companies issued in 2021 illustrate the problem. Some of these notes paid only a few months of coupons before being called, leaving investors with minimal returns despite taking on significant risk. Others stopped paying coupons altogether and are now on track to return less than 10% of the original investment at maturity.
In another case, Citigroup issued an autocallable note tied to Silicon Valley Bank (SVB) on March 9, 2023—the very day news broke that SVB was collapsing. That note was essentially worthless before it even settled in customer accounts. Investors who bought it will recover virtually nothing.
Autocallables are designed in ways that make it nearly impossible for retail investors to win. Issuers profit by embedding options into the notes, while shifting risk onto the customer. Many investors are also misled by financial advisors who fail to explain the complicated features and potential outcomes.
Regulators like the SEC require issuers to disclose the estimated fair market value of these products on the issue date. However, some banks manipulate those values by using internal funding rates that inflate the numbers. This tactic misleads investors into thinking they are buying notes worth more than they truly are.
If you have suffered losses from autocallable notes, you may have legal recourse. Misrepresentation, unsuitable recommendations, and deceptive sales practices are common in cases involving structured products. A securities fraud lawyer can investigate how the product was sold to you, whether the risks were properly disclosed, and whether your advisor acted in your best interest.
Levin Papantonio’s securities fraud attorneys have the experience and resources to take on major financial institutions. We work to hold issuers accountable and fight for investors who have been misled into high-risk, high-loss products like autocallable notes.
Contact Levin Papantonio today for a free consultation. You may be able to recover your financial losses
If you have suffered financial losses from structured products, you are not alone. Many investors across the country have been misled into buying these risky investments. The law may allow you to recover your losses and hold financial institutions accountable.
Contact Levin Papantonio today for a free consultation. Let us review your case and explain your legal options.
SOURCES:
CLE-Autocallables-2024.pdf
https://www.investopedia.com/articles/optioninvestor/07/structured_products.asp
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