RBC Capital Markets and Reverse Convertibles

We are currently investigating allegations made against RBC Capital Markets, a New York, New York-based securities brokerage firm.  FINRA (the Financial Industry Regulatory Authority) brought a regulatory action against RBC Capital Markets, alleging that it failed to reasonably supervise the sales of reverse convertibles.  To settle these allegations, RBC agreed to pay a $1 million fine and $433,000 in restitution to customers.

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.

RBC’s customers invested in reverse convertibles on at least 218 occasions between 2008 to 2012.  The customers lost $1.1 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 RBC Capital Markets’ 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.

If you have lost money with RBC Capital Markets or reverse convertibles, and want to hear about ALL legal options, please visit https://www.israelsneuman.com and go to our CONTACT page  or call us at 720-599-3505.

Click to view:  RBC FINRA AWC