Principal Protected Notes and Tenant-in-Common (TIC) Interests
Principal Protected Notes
Rich, Intelisano & Katz, LLP represents investors in connection with so-called “Structured Products,” including Principal Protected Notes issued by Lehman Brothers, as well as other large investment banks. These securities have been marketed to retail customers as moderate investments that offered a return linked to a broad market index like the S&P 500 with total or partial protection against losses.
In fact, these instruments are loans by investors and whether those loans will be repaid is based on the credit-worthiness of borrower. As the bankruptcy of Lehman Brothers illustrates, if the borrower defaults the investment may become worthless even though the market index to which the security is “linked” is doing well. Investors who were led to believe that structured products were suitable for them as a safe or guaranteed investment have suffered unexpected losses and have recovered damages in a number of awards by arbitration panels.
Structured products were issued and sold by firms such as UBS, Citigroup, HSBC, Merrill Lynch and Wachovia under names like “Enhanced Appreciation Securities,” “Return Optimized Securities” and “Principal Protected Notes.” Each investment has its own specific terms, risk characteristics and disclosure, any of which may affect amount and kind of loss that an investor might incur.
Tenant-in-Common (TIC) Interests
A “Tenant-in-Common” interest or “TIC” is an investment in real estate that is sometimes marketed to customers as a security through a broker-dealer. TIC’s are also known as a “Section 1031 Exchange” in connection with the favorable tax treatment that they can provide under the Internal Revenue Code. FINRA (the Financial Industry Regulatory Authority) has established rules and guidelines for the type of due diligence that a broker-dealer must perform before recommending a TIC to a customer as an investment.
The recent downturn in the economy has highlighted the risk to customers of investing in a TIC, as well as the necessity for a broker-dealer to conduct due diligence regarding the details of the investment that is being offered. The failure to conduct the proper level of due diligence, as well as fraud or misrepresentation in the offering materials and the unsuitability of the investment for the particular customer are all grounds for potential recovery. The successful prosecution of such claims calls upon a wide range of skills, including knowledge of the tax and securities laws, real estate financing and forensic accounting. Rich, Intelisano & Katz, LLP has represented investors who have brought claims in arbitration against issuers of tenant-in-common interests, as well as against broker-dealers through which TIC’s are sold.