Investigations

APPLE BOND LOSSES: ZAMANSKY WARNS INVESTORS TO WATCH OUT FOR STRUCTURED NOTES LOSSES FOR DECLINES IN APPLE STOCK OR GOLD

Zamansky LLC warns investors to watch their investment accounts for losses associated with structured notes linked to Apple Inc. (AAPL) stock or gold prices.  More than $241 million of structured notes tied to Apple face losses after a recent 27 percent drop in its stock price. Gold prices have also been trending down the past few months. These structured products are high risk investments that are not suitable for all investors.

Starting back on August 20, banks issued 76 U.S. notes linked to Apple stock during when the company was valued at $650 a share or more, according to data compiled by Bloomberg.  Banks issued $1.66 billion of notes based on Apple this year, almost three times as many as the year-earlier period, Bloomberg data show.   Many of the securities are “reverse convertibles”, notes that pay a high coupon while risking large losses if the share price plummets.  JPMorgan Chase & Co. was the largest issuer of Apple-linked notes, and sold $65.5 million of one-year auto-callable notes which had traded below par since it was issued.

Likewise, on January 2, 2013,  JPMorgan Chase & Co. also issued $35 million in notes linked to gold prices – one of the largest gold-linked offerings in years.  These notes have full downside risk to a drop in gold prices.  JPMorgan Chase also issued $82.4 million in gold-linked notes during the last year.

Investors should be wary of these bank- or brokerage firm-issued structured notes, which can cause large losses.  Often, these structured notes are sold to investors as relatively safe or risk-controlled ways to generate income.  In truth, the risk/reward ratio never is in the investor’s favor –the upside to investors is always capped, while the downside may be enormous. Most investors are not fully aware of the true risk level, and type of risk they are assuming by these investments.

Structured notes have become popular with banks and brokerage firms because they offer a way for the firms to earn higher fees.  The fees associated with a structured note offering exceed the commission the firm would earn from simply advising the investor to simply buy Apple stock.  However, structured notes are not suitable for all investors, particularly retirees or other conservative, low-risk investors.

If you believe that you suffered a loss from a structured note that was sold to you, please contact Jake Zamansky at 212 742-1414, or jake@zamansky.com.

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