Warning Signs for Junk Bond Investors
Some investments do not earn the anticipated amount of return, even though due diligence demonstrated it to be a safe investment. Other times a bear market or a company matter causes bond prices to plummet. And, sometimes investors simply make a bad investment decision. But, when does a loss indicate a junk bond scam or broker negligence?
Zamansky LLC is an experienced New York City securities law firm based on Wall Street. Our attorneys understand the fine line between a bad investment and fraud or negligence. We hold financial advisors, securities brokers and brokerage firms accountable for failing to conduct sufficient due diligence, violating their fiduciary duties, advising low-risk investors to purchase high-risk junk bonds and taking other negligent or fraudulent actions.
After a complete investigation of the claim, we counsel investors on whether to pursue legal action for losses arising from junk bond default. Common signs we look for include investments in the energy or commodities markets that significantly decline in value, a low rating junk bond and substantial company losses.
Energy markets have taken a beating. In fact, according to Standard & Poor’s Rating Service (S&P), close to one-third of defaults in 2015 were of companies in the gas, oil and energy sectors. Prices for such raw materials as aluminum, copper, iron ore and platinum, have also plummeted, prompting S&P to call 72 percent of all metal, mining and steel industry bonds distressed.
In the past, energy and commodities investments were marketed as too large to fail. As oil, gas and metal prices plummeted, financial advisors and brokers poured money into devalued bonds, with the goal of making high returns when the prices inevitably shot up. Unfortunately, many of these bonds defaulted instead. Significant devaluation of an energy or commodities bond raises red flags for junk bond fraud or negligence.
Bonds Rated B or Ba
A bond rated as B, Ba or lower by Moody’s, S&P or Fitch is considered a non-investment quality bond. For some investors who can shoulder the risk, these junk bonds present an opportunity to make a short-term, high-yield return. However, junk bonds are usually unsuitable for conservative investors. A financial advisor or securities broker who advises a low-risk investor to purchase non-investment quality bonds may be perpetrating a junk bond scam.
Substantial Company Losses
Substantial losses by a company, especially in a bull market, is often a sign that the financial advisor or broker acted fraudulently or negligently. Important evidence as to whether the investment was sound includes the company’s financial history, profit and loss trends and significant events that affect value.
Learn More About the Signs of a Junk Bond Investment Scam
The securities attorneys at Zamansky LLC protect the rights of investors. We determine whether an investor’s losses arose from junk bond fraud or negligence and aggressively pursue claims to recover damages. Contact our law firm for a free, confidential evaluation. We respond to all inquiries within 24 hours.