Senior Citizen Hits Wells Fargo in Reverse Convertible Case

A Financial Industry Regulatory Authority (FINRA) arbitration panel in Los Angeles, CA sided with an elderly gentleman and awarded him $125,000 in compensatory damages, plus the entire $15,750 in forum fees, to be paid by Wells Fargo Investments LLC for placing him in high risk convertible securities, according to a news release. The Claimant apparently was a cancer patient who was trying to preserve his estate for his children and certainly had little appetite for risk. He had been invested in certificates of deposit until the broker, Kennon R. Klein, solicited him to purchase reverse convertible securities in May 2008. (FINRA# 09-00339; Dominic V. Annino et al v. Wells Fargo Investments LLC and Kennon R. Klein)

Reverse convertibles typically consist of a short term promissory note issued by an investment bank such as Barclays or Societe Generale combined with a put option on an unrelated equity. If everything works as planned, the buyer gets the interest plus the return of his principal, however, if the linked stock’s price falls by a pre-determined percentage, the put option kicks in and the investor has the stock put to him at the reduced price instead of receiving the return of principal. When the put option is triggered, it causes an immediate and often catastrophic loss, potentially up to the entire amount invested.

Our securities law firm has investigated and handled many reverse convertible securities claims. Please contact us at 1-800-259-9010 for a confidential, no obligation consultation.

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