Red Flags for Junk Bond Investors


Dedicated NYC Law Firm Advocates for Investors

Naturally every investor wants to earn the highest return possible on an investment. However, high-yield junk bonds come with high risks in the best of circumstances, when an improvement in bond rating is anticipated, but not certain. Furthermore, promises of high earnings within a short time period make junk bonds an attractive vehicle for fraud.

Zamansky LLC is a premier Wall Street securities litigation law firm dedicated to advocating for the rights of investors. Our team understands the securities market and the laws that affect investors. Our investment fraud lawyers help investors recover damages resulting from unsuitable investments, negligence, fraud and breach of fiduciary duties associated with non-investment grade bonds.

Red Flags of an Unsuitable Investment of a Non-Investment Grade Bond

Junk bonds are not always a bad investment. These high-yield products can deliver substantial returns for investors who have a high level of risk tolerance. However, junk bonds may be unsuitable for investors with a low risk threshold because of the risk of default or substantial devaluation.

Investors who rely upon their brokers for sound advice may not realize they are heavily invested in high-risk bonds until they sustain substantial losses. Indications that a bond is categorized as a junk bond include:

  • The bond has a non-investment grade rating: Rating by the three rating companies — Moody’s, Standard & Poor’s (S&P) and Fitch — of B or Ba or lower indicates the bond is non-investment grade.
  • Investment is in energy, commodities or another volatile industry: Energy and commodities industries are notoriously volatile and can lead to wild fluctuations in investment returns.
  • Investment is in Puerto Rico: Puerto Rican and other government bonds are rapidly declining in value.
  • The bond promises high returns quickly: High-yield bonds also tend to be high risk.

Red Flags of a Junk Bond Investment Scam

Junk bond fraud targets investors attracted to short-term high returns. While a legitimate non-investment grade bond may deliver on that promise, a junk bond fraud eventually collapses. Often, junk bond fraud is not an investment mechanism at all, but rather a Ponzi scheme or a bond with no chance of recovery.

Red flags that the investment is fraudulent include:

  • Promises of yields substantially above historic rates of return
  • Confusing descriptions of investment strategy and methodology
  • Lack of information about the broker or operator, usually through an Internet website or email
  • Foreign location of the operator, which may not be properly registered with SEC or licensed by FINRA
  • Requirement of an e-currency transaction
  • New recruit incentives, which is often a sign of a Ponzi scheme

Contact Our Securities Law Firm to Pursue Junk Bond Loss Recovery

Zamansky LLC handles cases involving junk bond fraud, unsuitable investments, broker negligence, breach of fiduciary duty and related claims in order to recover losses sustained by investors. Contact an investment fraud lawyer at our firm today for a risk-free, confidential evaluation.