When stockholders or financial advisors fail to practice due diligence or inform investors of the risks associated with a structured product, the result often seems to go badly for investors. Fortunately, securities laws offer some protection, and perhaps a way for wronged investors to recoup their losses in a securities fraud lawsuit.
In recent years, structured products have drawn particular scrutiny from officials at the U.S. Securities and Exchange Commission. This type of investment product often replaces a security's traditional payment features with a payoff schedule based on the performance of other underlying assets.
For example, instead of receiving interest payments from a bond, investors might be paid according to the performance of a bond index. Another structured product might be a collateralized debt obligation comprised of mortgage-backed securities. The product is designed to produce a stream of payments from the collateral assets.
However, some commentators point to structured products as contributing to the 2007 financial crisis. One particular criticism is the complexity of such products, whose collateral assets may be difficult to value or even examine. That complexity may have prevented some investors from understanding how much of their investment product was secured by risky collateral, such as sub-prime mortgages.
In a related matter, DB Structured Products Inc. was accused of deceptive mortgage lending and sales methods. The charges also include misrepresentations to consumers who took out the loans. DB recently agreed to pay an $11.5 million settlement.
Source: legalnewsline.com, "Nevada AG announces $11.5 million agreement with loan securitizer," Bryan Cohen, Oct. 21, 2013