Alan Appelbaum Embroiled in a $1.6 Million Dispute Regarding Structured Notes

Alan Appelbaum recently faced allegations that he over-concentrated his investor’s portfolio in complex, structured investment products (SIPs). The dispute has settled for $1.6 million. These allegations are especially concerning because the investor allegedly stated that she wanted fixed-income investments that preserved her capital. Structured investment products are not ideal for investors with that objective, as SIPs come with features that pose an inherent risk to the investment capital.

Unfortunately, the investor may not have realized how much financial risk she had taken on. Financial advisors sometimes over-emphasize the benefits of SIPs, like a substantial interest rate for the first couple of years, without addressing the potential for loss. In this case, the structured products allegedly came with features that gradually diminished the capital investment. The investor further alleges that Appelbaum purchased structured products in her account without her authorization.

Following this latest dispute, Aegis Capital Corp fired Alan Appelbaum on May 14, 2021. (This is according to his BrokerCheck record, as of May 24, 2021.)

What is a Structured Investment Product?

Structured investment products are engineered to generate interest without relying on good stock and bond market performance. Instead, they depend on the performance of an underlying portfolio of securities. SIPs typically use a bond or a CD to purchase a derivative product. Derivatives could comprise a security or an index of securities.

What Makes SIPs Risky Investments?

Complex structured products can take years to reach their maturity date. These types of securities are often illiquid, making it difficult for investors to cash out if they change their minds about the investment strategy. SIPs are not traded on the public exchange, which is often a sign that that the investment vehicle may pose a significant risk to investors.

What Does the SEC Say About SIPs?

The SEC has scrutinized SIPs because of the steep fees they generate for firms, without providing any clear financial benefits for the investor. They are often marketed as a good way to diversify portfolios, but there may be simpler, more cost-effective ways to diversify.

What Made These Investments High Risk?

· In this latest case, Appelbaum allegedly sold investments that depended on the “yield curve,” which depends on the interest rate over time. At the moment, interest rates are flat.

· These structured notes also involved a reverse convertible note. This product combines a debt instrument and a put option, which is a contract to sell an amount of a certain security by a specified deadline.

If you’re not clear how these types of investments make money, that’s normal. They are quite complex, and many financial advisors would struggle to explain their advantages to investors.

Did Aegis Fail to Supervise?

FINRA requires firms to maintain supervisory systems. These systems can flag investments that may pose too much risk for an investor. If Aegis failed to supervise Appelbaum’s recommendations, they could be held liable for some of the investor’s damages.

Settled Investor Disputes

Appelbaum has 13 investor disputes on his record, in addition to three regulatory actions, according to his BrokerCheck record, accessed on May 21, 2021. Many of these disputes involve allegations of misrepresentation and over-charging investors. Several disputes also allege unsuitable investments, meaning that Appelbaum recommended investments that did not fit the investor’s financial goals.

· On September 16, 2019, an investor alleged that Appelbaum recommended unsuitable investments and executed unauthorized trades. That dispute settled for $1,650,000.

· In 2015, two investor disputes alleged that Appelbaum recommended unsuitable investments. Those disputes collectively settled for $55,000.

· Appelbaum has also been involved in investor disputes that alleged he overcharged his investor. On March 7, 2006, an investor alleged that Alan Appelbaum charged an excessive mark-up for bonds. That dispute settled for $250,000.

· On September 19, 2003, an investor alleged that Appelbaum engaged in negligent misrepresentation of bonds, including Weirton Steel and US Airways bonds. FINRA ordered Appelbaum to pay the investor damages of $45,722. You can read a copy of the arbitration award here.

· Between 2001 and 2002, Appelbaum settled three investor disputes that involved bonds. These collectively settled for $92,500.

What Can I Do If I Invested with Alan Appelbaum?

If you worked with Alan Appelbaum and you have concerns about your investments, the securities attorneys at Fitapelli Kurta would like to speak with you right away. Call (877) 238–4175 or email info@fkesq.com for a free case evaluation.