UBS AG, Morgan Stanley and Ameriprise Financial Inc. have received a request for information from Georgia in its probe over whether the three firms broke state security laws in sales of reverse convertibles1.
Subpoenas requesting information from each of the firms were sent by the Secretary of State’s office. The requested information includes how many reverse convertibles the companies sold in Georgia and the names of the investors.
According to Vincent Rosso, general counsel and acting assistant securities commissioner for the Secretary of State’s office, Georgia began examining the reverse convertibles in May of this year after lawyers began receiving complaints from investors asking if the state had any open investigations.
“We received a generic subpoena seeking a list of Georgia-based clients who invested in certain types of products, some of which we do not offer. The subpoena does not name products or advisers,” Benjamin Pratt, a spokesman for Minneapolis-based Ameriprise, said in an e-mail.
Spokespeople for Zurich-based UBS and Morgan Stanley in New York refused to comment.
As the state of the economy frustrates investors, a rise in the sales of structured notes, such as reverse convertibles, has become a trend. These types of securities are difficult for brokers and investors to evaluate, according to the Financial Industry Regulatory Authority (FINRA.)
As sales have increased, so has regulation of the market. Some brokers have been fined for marketing reverse convertibles to elderly or low-income investors.
Head of the Securities and Exchange Commission’s structured products unit, Kenneth Lench, said in a September interview that the agency was examining whether brokers overcharged investors for the notes.
1A reverse convertible security or reverse convertible is a short-term note linked to an underlying stock. The security offers a steady stream of income due to the payment of a high coupon rate. In addition, at maturity the owner will receive either 100% of the par value or, if the stock value falls, a predetermined number of shares of the underlying stock.
Full Article: UBS, Morgan Stanley subpoenaed over reverse convertibles