Erez Law recently filed a $500,000 FINRA arbitration against Invex, LLC. The former Invex, LLC customers allege that the Miami, Florida-based firm recommended a speculative and unsuitable strategy of concentrating the elderly couple’s portfolio in three high risk, complex and illiquid structured products known as “reverse convertibles,” as well as in high risk and unsuitable junk bonds.
A reverse convertible is a short-term note linked to an underlying stock, basket of stocks or index, which is commonly known as the “reference” shares. Reverse convertibles typically have two components: (i) the note, which pays an above market coupon; and (ii) the derivative, which is typically in the form of a “put” option that gives the issuer the right to repay the investor in a predetermined number of shares of the underlying reference stock. Upon maturity, the reverse convertible owner receives either par value [i.e. their original principal investment] or, if the stock’s value falls below a predetermined threshold known as the “knock-in” or “barrier” price, the investor’s principal investment is repaid by receiving a predetermined number of shares of the underlying reference shares, typically worth less than the principal amount.
FINRA has repeatedly cautioned broker-dealers such as Invex, LLC that reverse convertibles and other structured products should only be sold to customers approved for options trading. FINRA has also repeatedly cautioned its member firms about their obligations to ensure that customers have sufficient knowledge to evaluate the risks of reverse convertibles, before recommending them to customers.
Rather than create a diversified portfolio designed to provide stable income and preserve the customers’ capital, Invex, LLC recommended a reckless and unsuitable strategy of concentrating the customer’s portfolio in speculative and high risk investments. The elderly couple allege that they were inexperienced investors, and that they were interested in low risk investments that would generate a modest degree of income and preserve their principal.
In order to induce them to invest, it is alleged that Invex, LLC led the customers to believe that these reverse convertibles were secure and low risk investments, when in reality they were just the opposite. The structured notes Invex, LLC recommended and sold to the customers were complex, illiquid and opaque financial instruments that are not widely traded on any public exchange, including:
- Deutsche Bank AG London BRH Reverse Convertible Notes Linked to BABA, WMT
- Exane Finance 11% P.EV Conv. Linked to BSKT
- Deutsche Bank AG London BRH Reverse Convertible Notes Linked to BABA, WMT
Additionally, Invex, LLC recommended a reckless and unsuitable strategy of dangerously concentrating more than 65% of the customers’ portfolio in three highly speculative and below investment grade (i.e. “junk”) bonds of three financially troubled companies, all of which have since defaulted on their debt. Invex, LLC recommended the customers invest in speculative and unsuitable bonds, including:
- Empresas ICA Sociedad Reg S
- Arendal S. de R.L. de C.V. Reg S
- U.S.J. – Açúcar e Álcool S.A. Sr Unsecured Reg S
At the time Invex, LLC recommended the customers recklessly concentrate their portfolio in just one high risk junk bond, Arendal was rated B- by Standard & Poor’s (S&P), which is six notches below investment grade. At the time Invex, LLC recommended and sold the Empresas ICA bond to the customers, it was rated B+ by S&P, four notches below investment grade. In order to induce them to invest, Invex, LLC led the couple to believe that the Arendal, Empresas ICA and Açúcar e Álcool bonds were secure and financially sound investments. Based on these assurances, the couple followed Invex, LLC’s recommendation and agreed to invest.
Invex, LLC caused the Claimants to suffer significant losses after the credit ratings of these investments suffered further downgrades. Despite downgrades, it is alleged that Invex, LLC repeatedly recommended the the clients continue to hold their unsuitable and dangerously concentrated portfolio.
Invex, LLC recommended an extreme and dangerous level of concentration which lacked any material diversification. Invex, LLC’s strategy of over concentrating the claimants’ savings in speculative and unsuitable junk bonds and reverse convertibles exposed them to high degree of undisclosed risk and was unsuitable.
If you were a client of Invex, LLC or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.
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