Structured Products Fraud Attorney
Structured products are among the most complex and misunderstood investments sold to everyday investors. These derivatives-based securities combine bonds with options tied to market indexes, individual stocks, or commodities. While Wall Street markets them as sophisticated wealth-building tools, structured products often carry hidden risks that brokers fail to adequately disclose. When these investments fail, investors can suffer devastating losses that should never have occurred.
At Varnavides Law, we represent investors who have lost money due to investment fraud involving structured products. Our founder, Gary Varnavides, spent 10 years at a major securities defense firm representing broker-dealers in arbitration proceedings. This insider experience means we understand exactly how brokerage firms defend against investor claims and how to build winning cases for our clients.
Key Takeaways
- Structured products combine bonds and derivatives, creating complex risk profiles that many investors do not fully understand
- Common fraud involves brokers misrepresenting risks, recommending unsuitable investments, or failing to disclose conflicts of interest
- Investors can recover losses through FINRA arbitration within six years of the transaction or two years of discovering the fraud
- Our attorney spent 10 years defending broker-dealers, giving us unique insight into how to win your case
- Most structured products cases are handled on a contingency fee basis with no upfront costs
What Are Structured Products?
Structured products are pre-packaged investments that derive their value from underlying assets such as stocks, bonds, indexes, commodities, or interest rates. The SEC defines structured notes as securities whose returns are linked to an underlying asset, group of assets, or index. Unlike traditional investments, structured products use derivatives like options and forwards to create customized payoff structures.
The most common types of structured products include:
Structured Notes
Debt securities issued by banks that combine a bond component with an embedded derivative. Returns are typically linked to the performance of an index like the S&P 500.
- Principal protected notes
- Market-linked CDs
- Equity-linked notes
Reverse Convertibles
Short-term notes that pay high coupon rates but expose investors to significant downside risk if the underlying stock falls below a set barrier level.
- Autocallable notes
- Barrier notes
- Knock-in puts
Hidden Risks Your Broker May Not Have Disclosed
Structured products carry numerous risks that brokers often downplay or fail to explain adequately. According to FINRA investor alerts, these investments are among the most complex products sold to retail investors. The North American Securities Administrators Association (NASAA) has identified structured products as a recurring concern in investor complaints. The SEC has specifically warned that structured products may not be suitable for investors who do not fully understand their terms and risks.
Warning: The 2008 financial crisis demonstrated the dangers of structured products when Lehman Brothers collapsed. Investors holding Lehman-issued structured notes lost their entire principal, regardless of how the underlying index performed.
| Risk Type | What It Means | What Brokers Often Say |
|---|---|---|
| Issuer Credit Risk | If the issuing bank fails, you may lose everything | The bank is too big to fail |
| Liquidity Risk | No secondary market exists; you cannot sell before maturity | You can always sell if needed |
| Pricing Opacity | True value is difficult to determine; daily prices are estimates | This is a transparent investment |
| Principal Loss | You can lose all or most of your initial investment | Your principal is protected |
| Capped Returns | Upside gains are limited even when markets soar | You participate in market gains |
Types of Structured Products Fraud
When brokers sell structured products inappropriately, they may be committing securities fraud. Our firm handles cases involving multiple forms of broker misconduct related to these complex investments.
Misrepresentation and Omission
Brokers who misrepresent the safety or returns of structured products, or who fail to disclose material risks, violate securities laws. Common misrepresentations include describing structured products as safe, guaranteed, or similar to CDs when they carry far greater risk.
Unsuitable Recommendations
FINRA Rule 2111 requires brokers to have a reasonable basis for believing their recommendations are suitable for each customer based on their investment profile. Structured products are frequently sold to conservative investors, retirees, and those seeking income who should never have been exposed to these high-risk instruments. The SEC’s Office of Investor Education and Advocacy recommends that investors verify their broker’s disciplinary history through BrokerCheck before investing.
Failure to Supervise
Brokerage firms must supervise their registered representatives and have systems in place to prevent unsuitable sales. When firms fail to adequately monitor structured product sales or ignore red flags, they share liability for investor losses.
Excessive Commissions
Structured products often generate substantial commissions for brokers, creating incentives to recommend them regardless of suitability. When commission structures are not disclosed or when brokers engage in churning, investors may have additional claims.
SEC Enforcement: In September 2024, the SEC charged a broker-dealer for failing to maintain proper Regulation Best Interest compliance when recommending structured notes. The firm agreed to pay a $325,000 civil penalty for not having accurate customer information necessary to make suitable recommendations.
Who Should Not Invest in Structured Products
Structured products are inherently unsuitable for many investor categories. If you fall into any of the following groups and were sold structured products, you may have a strong claim for recovery.
Retirees and Seniors
Investors who depend on their savings for income and cannot afford to lose principal should generally avoid structured products entirely. The illiquidity and downside risk make these unsuitable for retirement portfolios.
Conservative Investors
Those with low risk tolerance who seek stable, predictable returns are poorly matched with structured products. The complexity and potential for total loss contradict conservative investment objectives.
Inexperienced Investors
Investors without significant experience in derivatives or complex financial products may not understand the risks they are taking. Brokers have a duty to ensure customers comprehend their investments.
How to Recover Losses from Structured Products
Investors who have suffered losses from structured products have several legal avenues for recovery. The most common and effective method is FINRA arbitration, which is generally faster and less expensive than traditional litigation.
FINRA Arbitration Process
When you open a brokerage account, you typically sign an agreement requiring disputes to be resolved through FINRA arbitration rather than court. This process involves presenting your case to a panel of arbitrators who will issue a binding decision.
| Stage | Timeline | What Happens |
|---|---|---|
| File Statement of Claim | Day 1 | We file your claim with FINRA detailing the misconduct and damages |
| Firm Response | 45 days | The brokerage firm files its answer to your allegations |
| Arbitrator Selection | 2-3 months | Both parties participate in selecting a neutral arbitration panel |
| Discovery | 3-6 months | Exchange of documents, interrogatories, and evidence |
| Hearing | 12-16 months | Presentation of evidence and testimony before arbitrators |
| Award | 30 days after hearing | Arbitrators issue binding decision |
Time Limits for Filing Claims
FINRA rules require claims to be filed within six years of the events giving rise to the dispute. However, state statutes of limitations may be shorter. Additionally, the discovery rule may extend deadlines when fraud was concealed. Contact an attorney promptly to preserve your rights.
Legal Claims in Structured Products Cases
Our firm pursues multiple legal theories to maximize recovery for structured products investors. The specific claims depend on the facts of your case and the misconduct involved.
Securities Fraud
- Material misrepresentation or omission
- Manipulation of investment advice
- Violation of antifraud provisions
- Scheme liability
FINRA Rule Violations
- Suitability (Rule 2111)
- Fair dealing (Rule 2010)
- Know your customer
- Supervision failures
Breach of Fiduciary Duty
- Putting firm interests first
- Conflict of interest concealment
- Self-dealing transactions
- Failure to act in best interest
State Law Claims
- California securities violations
- Elder financial abuse
- Negligence and gross negligence
- Breach of contract
What Makes Varnavides Law Different
Our founder, Gary Varnavides, brings a unique perspective to structured products cases. He spent 10 years at Sichenzia Ross Ference LLP, a major securities defense firm, representing broker-dealers in FINRA arbitration proceedings. This experience provides invaluable insight into how Wall Street defends against investor claims.
The Insider Advantage
When you are up against major brokerage firms with armies of defense lawyers, you need an attorney who knows their strategies. Gary has sat on the other side of the table. He understands the arguments they will make, the evidence they will seek to suppress, and the weaknesses in their defenses.
Credentials: Gary Varnavides has been recognized as a Super Lawyers Rising Star from 2015 through 2023, an honor given to the top 2.5% of attorneys in the New York Metro area. He is licensed to practice in California and New York.
Client-Focused Representation
We limit the number of cases we accept so we can provide personalized attention to every client. When you work with Varnavides Law, you work directly with Gary, not paralegals or junior associates. Your case receives the experienced advocacy it deserves.
Understanding Your Fee Options
We handle most structured products fraud cases on a contingency fee basis, meaning you pay nothing upfront and we only collect a fee if we recover money for you.
Contingency Fee Arrangement
- No upfront attorney fees
- We advance case costs
- Fee percentage discussed during consultation
- No recovery means no fee
Case Costs
- FINRA filing fees
- Expert witness fees
- Document production costs
- Discussed during consultation
Schedule a free consultation to discuss your case and learn about your fee options. We will review your situation, explain the strength of your potential claims, and outline the likely costs involved.
Steps to Take If You Lost Money on Structured Products
If you believe you were sold unsuitable structured products or that your broker misrepresented the risks involved, taking prompt action can strengthen your case.
- Gather your documents: Collect account statements, trade confirmations, prospectuses, and any communications with your broker about the structured products.
- Note what you were told: Write down what your broker said about the investment, including any promises of safety, guaranteed returns, or comparisons to safer investments.
- Calculate your losses: Determine the total amount invested, any returns received, and the net loss you have suffered.
- Do not delay: Statutes of limitations apply to securities claims. The sooner you contact an attorney, the better your chances of recovery.
- Schedule a consultation: Contact our office for a free case evaluation. We can assess your situation and advise you on the best path forward.
California Investors: Local Representation
Varnavides Law is based in Los Angeles and focuses on helping California investors recover losses from securities fraud. We understand California securities laws and how they provide additional protections beyond federal regulations. The California Department of Financial Protection and Innovation (DFPI) oversees securities transactions in the state and provides additional resources for investor protection.
California investors may have claims under:
- California Corporations Code Section 25400 (manipulation)
- California Corporations Code Section 25500 (insider trading)
- California Elder Abuse statutes (for seniors targeted with unsuitable investments)
- California common law fraud and negligence
Our location in Los Angeles means we can meet with clients throughout Southern California and provide the personal attention that out-of-state firms cannot offer.
Frequently Asked Questions
What are structured products and why are they risky?
Structured products are complex investments that combine bonds with derivatives linked to underlying assets like stock indexes. They are risky because they expose investors to issuer credit risk (if the issuing bank fails, you may lose everything), have limited liquidity (you cannot easily sell before maturity), and often have capped returns while exposing investors to full downside risk. The complexity makes it difficult for average investors to understand what they are buying.
How do I know if I have a structured products fraud case?
You may have a case if your broker recommended structured products without adequately explaining the risks, if the investment was unsuitable for your age, experience, or investment objectives, if you were told the products were safe or similar to CDs, or if you were not informed about the broker’s commission incentives. Contact our office for a free evaluation of your specific situation.
What is FINRA arbitration and how does it work?
FINRA arbitration is a dispute resolution process for securities industry disputes. Most brokerage account agreements require investors to arbitrate rather than file lawsuits. The process involves filing a claim, exchanging documents during discovery, and presenting your case to a panel of arbitrators who issue a binding decision. Arbitration is typically faster and less expensive than court litigation.
How long do I have to file a claim for structured products losses?
FINRA requires claims to be filed within six years of the events giving rise to the dispute. However, state statutes of limitations may impose shorter deadlines. The discovery rule may extend these deadlines if the fraud was concealed. Because timing is critical, contact an attorney as soon as you suspect misconduct.
What damages can I recover in a structured products case?
Investors can typically recover their out-of-pocket losses (the difference between what you paid and what you received), plus interest. In some cases, you may also recover consequential damages, lost opportunity costs, and attorneys’ fees. Punitive damages may be available in cases involving particularly egregious misconduct.
Do I have to pay anything upfront to hire an attorney?
We handle most structured products cases on a contingency fee basis, which means you pay no attorney fees unless we recover money for you. Case costs such as filing fees and expert witnesses are typically advanced by our firm and repaid from any recovery. Schedule a free consultation to discuss the fee arrangement for your specific case.
Can I still file a claim if I signed documents agreeing to the risks?
Yes, in many cases. Signing risk disclosures does not eliminate your broker’s obligation to ensure the investment was suitable for you and to provide accurate oral representations. If your broker misrepresented the risks or recommended an investment that was fundamentally unsuitable for your investment profile, you may still have valid claims despite signed paperwork.
What if my broker or firm has gone out of business?
Even if your broker or brokerage firm is no longer operating, recovery may still be possible. Clearing firms, successor firms, and SIPC (Securities Investor Protection Corporation) may provide avenues for recovery. Additionally, individual brokers may have personal assets or insurance coverage. We can evaluate all potential sources of recovery in your case.
Contact a Structured Products Attorney Today
If you lost money investing in structured products, you may be entitled to recover your losses. Our firm provides experienced representation for investors throughout California and nationally in securities litigation and FINRA arbitration.
Contact Varnavides Law today for a free consultation. We will review your case, explain your legal options, and help you understand whether you have grounds for recovery. With our contingency fee arrangement, you risk nothing to find out if we can help.
Free Case Evaluation
Lost money on structured products? Our securities fraud attorney can help you understand your options and fight to recover your losses. Contact us today for a confidential consultation.
