Articles Tagged with Silicon Valley Bank

Investors in so-called “auto-callable” notes links to stocks may have FINRA arbitration claims, if their investment was recommended by a stockbroker or financial advisor who lacked a reasonable basis for the recommendation, or if the nature and risks of the investment were misrepresented.

“Auto-callable” notes are structured products that are  often sold as higher-yielding alternatives to bonds, which obscures the fact that investors’ potential losses are much larger and much more likely to occur than in a bond investment.  But during the years 2020-22, when record low interest rates prevailed, sales of “auto-callable” notes skyrocketed, peaking at $40.1 billion in 2021.   Desperate for income, investors were often sold these notes based on a sales presentation that focused on yields approaching 10% a year.

But these high stated yields can be misleading for a simple reason- the investor actually receives the stated and advertised yield only under certain conditions.   If the price of the referenced stock rises  above the referenced stocks price at the time of issuance, the notes are “auto-called” and the income yield ceases. By called, it is meant that the note is bought back from the investor by issuer.  Once the note is called the investor receives no more distributions and essentially breaks even on the investment, except for any distributions that he or she may have received to date.