First Republic Bank Preferred Shares

If you lost money on First Republic preferred stock, you may have a case for a securities attorney. Investors should know that preferred stocks often do not fit investors’ needs, and broker recommendations of these shares may violate securities regulations. For starters, First Republic Bank preferred shares were noncumulative, meaning that if the bank suspended dividends but then resumed payment at some point in the future, the bank would not have to make up for missed payments. Noncumulative preferred shares are always riskier than cumulative shares.

According to the Wall Street Journal, First Republic Bank executives allegedly told employees that the bank “was built for tough times,” and that the bank’s “‘liquidity positions were very strong,” even as share prices fell dramatically.

Brokers are required by securities industry rules and regulations to consider their investor’s best interests before recommending shares. Our attorneys offer free case evaluations. Contact Kurta Law to speak with an investment fraud attorney. Call (877) 600-0098 or email info@kurtalawfirm.com.

Securities Rules and Regulations

Stockbrokers are required to recommend investments that suit their investors’ needs, under both FINRA Rule 2111 and Regulation Best Interest.

FINRA Rule 2111 requires brokers to consider their investor’s financial goals, age, risk tolerance, and liquidity needs – i.e., how soon they might need to access their funds. Preferred shares are typically long-term investments, making them unsuitable for anyone who needs liquidity. Regulation Best Interest also prohibits brokers from putting their own financial interests ahead of those of their customers. In some cases, brokerage firms may have a financial incentive to push a particular investment. This regulation requires brokerage firms to mitigate and disclose any conflicts of interest and to consider their investors’ best interests.

FINRA Rule 2020 also prohibits brokers from misrepresenting an investment or omitting material information. Material information would include any particular risks related to the type of investment or the issuer. If you believe your broker should have given you more information about your preferred shares of First Republic Bank, contact Kurta Law today.

How Did First Republic Bank Lose So Much Money?

First Republic Bank lost money following the panicked withdrawals of many of its wealthy clients. This followed the failure of Silicon Valley Bank, a bank that, like First Republic Bank, had deposits that went over the insurance limits of the Federal Deposit Insurance Corporation, which only insures deposits up to $250,000. Silicon Valley Bank did not have enough money on hand to pay its customers who wanted to withdraw their money when inflation rates rose. This run on the bank created panic, and soon First Republic Bank faced a similar whirlwind of withdrawals.

In April 2023, First Republic Bank announced it would stop paying dividends on its shares of preferred stock. First Republic Bank closed in May 2023, in spite of the $30 billion injection it received from other large banks. JP Morgan took over the remaining accounts and assumed most of the bank’s assets.

What Are Preferred Stocks?

Preferred stock attracts investors with its promise of regular dividend payment, and its commitment to pay preferred stockholders before common stockholders in the event of liquidation. Preferred stockholders should know, however, that they are not first in line for payment following a liquidation. Issuers are obligated to pay their debtholders first.

Preferred stock dividends do not fluctuate or grow with the company. They are supposed to offer reliable payments, but are often “callable,” meaning that issuers can recall them after a certain number of years.

Contact Kurta Law Today

If you believe you lost funds as a result of broker fraud or misconduct, contact Kurta Law today. You have a limited time to file a claim, so do not hesitate to reach out: (877) 600-0098 or info@kurtalawfirm.com. Our experienced investment fraud lawyers work on contingency, meaning they do not collect a fee unless they win your case. It costs nothing to speak with a securities attorney and determine if you have a case.