WARNING! Impending Investigation: CAPITAL SECURITIES MANAGEMENT and REVERSE CONVERTIBLES
Capital Securities Management, Inc. and Reverse Convertibles
We are currently investigating allegations made against Capital Securities Management, Inc., a Minneapolis, Minnesota-based securities brokerage firm. FINRA (the Financial Industry Regulatory Authority) brought a regulatory action against Capital Securities Management, alleging that it failed to reasonably supervise the sales of reverse convertibles, among several other allegations. To settle all of these allegations, Capital Securities Management agreed to pay a $470,000 fine.
Reverse convertibles are investments in interest-bearing notes, where the principal investment is linked to the performance of an asset, often a stock or index. At the maturity of the note, the investor may get their principal investment back. However, at maturity, if the value of the reference stock or index is below a certain level or threshold (called the “knock-in level”), then the investor may receive shares of the underlying investment or get a cash equivalent. These investments could expose investors to substantial losses. Reverse convertibles, which are structured investments, have limited liquidity and complex payment structures that some financial advisors and customers may not adequately understand.
At least eight Capital Securities Management customers invested in reverse convertibles between 2008 to 2011. The customers investors $4 million in these reverse convertibles.
FINRA warned broker-dealers about the risks of reverse convertibles in FINRA’s Notice to Members 10-09. FINRA alleged that Capital Securities Management’ compliance software failed to flag transactions where the customers’ net worth, income, or investment objectives were not consistent with the risks and characteristics of reverse convertibles.
Israels & Neuman PLC is a securities and investment fraud law firm with offices in Denver, Colorado and the Seattle area. We represent investors in FINRA arbitration proceedings in all 50 states. Our attorneys have represented over one thousand investors against many brokerage firms in the past, including LPL Financial, Merrill Lynch, Morgan Stanley, Smith Barney, Stifel Nicolaus & Company, UBS Financial Services, Oppenheimer, Charles Schwab, Wells Fargo Advisors, Ameriprise Financial Services, Raymond James Financial Services, ProEquities, Securities America, National Securities Corp., and many others.
Click to view: CSM FINRA AWC
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