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Will Technology-Related Structured Notes Fleece Retail Investors?

On November 27, 2018, in an article published on Bloomberg (“Wall Street’s FANG Notes for Mom and Pop Buckle on Tech Pain”), it was noted that main street investors who have purchased FANG or other technology related structured notes face a stark reality check.

“FANG” is the acronym for four technology stocks – Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Google (NASDAQ: GOOGL) which is now known as Alphabet.

With banks selling $2 billion of structured products linked to one or more of the now-struggling FANG members this year alone, investors are getting schooled on the risks lurking in complex debt securities — even those laden with supposed protective buffers. Investors have already missed out on coupon payments and, unless the U.S. equity markets significantly reverse course, investors face haircuts and more lost income.

Among the hardest hit of the technology-related securities are those structured securities that are tied to Nvidia Corp. (NASDAQ: NVDA), with $221 million linked to the chipmaker having been sold globally this year alone. The timing couldn’t be worse: the stock is down significantly since last month after having posted disappointing forecasts. Nvidia’s trading below the threshold required to receive the touted 11 percent coupon return per year.

Another example is Citigroup having sold $7.34 million of structured notes tied to Netflix in June when the shares were rocketing toward an all-time high. The six-month securities pay an annualized coupon of 13.75 percent as long as the streaming service remains above $308.32. With the stock trading significantly below the $308.32 price, investors would have received no coupon this month and risk losing a significant portion of their principal when the notes mature on Dec. 28 unless Netflix stages a rally to the tune of 10 percent by the maturity date.

If you are an individual or institutional investor who has any concerns about your technology investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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