Victim of Financial Fraud? Call Now
Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author

Structured products—also referred to as structured notes, or structured credit— are complex, hybrid products that combine a bond with a derivative component. “Derivatives” get their value from an asset, like a stock or a futures contract. According to the SEC, structured notes may comprise a blond plus equity indexes, a single equity, interest rates, commodities, and foreign currencies. Firms may advertise structured notes as products that come with upside potential and principal protection, but the reality is that these products often offer more risk than reward. 

Structured products may feature some form of principal protection, but they more often will not. The customizability of structured products often makes them overly complex for most everyday investors. They are typically offered to institutional investors and accredited investors – i.e., companies and particularly wealthy investors. They are often unsuitable for ordinary retail investors.

If your broker recommended structured investment products resulting in investment portfolio losses, you should contact a securities attorney right away. Our team at Kurta Law is ready to assist with your case.

Structured Note Maturity Dates 

Large financial institutions typically design and issue structured notes, which broker-dealers sell to their investment clients. The structured products do not represent ownership of any portfolio of assets. Instead, the structured product represents a promise to pay made by the issuer of the structured note. At the set maturity date, the investor receives some or all of the principal. 

Additionally, the investor receives a return linked to a change in the underlying asset’s value. If you hold your structured note until maturity, you will receive at least a portion of your initial investment. However, that depends on the issuer’s ability to pay back your initial investment. If your issuer falls into bankruptcy, you could lose all your initial investment.

Broker Obligations Concerning Structured Products

Sales of structured products first gained popularity with institutional investors in the 1990s. Structured products eventually targeted retail investors. The complexity and confusion surrounding structured products have influenced regulatory agencies to issue notices concerning the obligations of brokers recommending these investment products.

National Association of Securities Dealers: Notice to Members 05-59

In 2005, the National Association of Securities Dealers (NASD) issued guidance on the sales practice obligations for NASD members when selling structured products. 

  • First, the NASD emphasized the need for brokers to present a “fair and balanced picture” regarding both the risks and benefits of a structured product. 
  • Second, the NASD directed member firms to consider whether purchases of some or all structured products should be limited to investors with accounts approved for options trading. 
  • Third, the NASD reminded members of their obligation to perform a reasonable basis suitability analysis and a customer-specific suitability analysis. 
  • Fourth, the NASD mandated that members establish written supervisory procedures reasonably designed to ensure structured product sales comply with applicable securities laws and regulations.
  • Finally, the NASD required member firms to train registered personnel about the characteristics, risks, and rewards associated with each structured product before allowing the registered person to sell the products to investors.

Reasonable-basis suitability

A reasonable-basis suitability analysis requires the broker to have a reasonable basis to believe, based on reasonable diligence, that the investment or investment strategy recommended is suitable for some investors. Reasonable diligence should provide the advisor with an understanding of the risks and rewards associated with the investment product. 

Customer-specific suitability

A customer-specific suitability analysis requires the broker to have a reasonable basis to believe the recommendation is suitable for a specific customer’s investment profile. Whether an investment is suitable for a customer’s investment profile depends on several factors, including their:

  • Age;
  • Financial situation and needs;
  • Tax status;
  • Investment objectives;
  • Investment time horizon;
  • Liquidity needs;
  • Investment experience; and
  • Risk tolerance.

Advisors must take these considerations into account when deciding whether to recommend such an investment to a client.

Financial Industry Regulatory Authority: Regulatory Notice 12-03

In March 2012, FINRA issued a regulatory notice regarding the characteristics, risks, and benefits associated with structured products. The notice further addressed the use of heightened procedures that can help FINRA member firms ensure investors know the features of the investment they are purchasing. FINRA suggests firms implement formal written procedures to ensure registered representatives do not recommend a structured product before it has been thoroughly vetted. The procedures should ensure brokers know the answers to extensive questions about the product, such as:

  • Who is considered an ideal investor for this type of product?
  • Is this product unsuitable for certain investors? If so, who?
  • What is the product’s investment objective?
  • What risks does a structured product present to your investment portfolio?
  • How will the firm and registered representative receive compensation for offering this product? 
  • How does the complexity of this product affect suitability considerations or training requirements associated with the product?
  • Can I sell the structured product easily?

If a registered representative can satisfactorily answer questions about the product’s characteristics, the procedures have served their purpose.

FINRA emphasized the importance of the mandates initiated by the NASD, including having an internal procedure to review the suitability of structured products and giving registered representatives adequate training to understand the features and risks associated with structured products.

Risks Associated with Structured Notes

Structured products possess a variety of different risks that investors should know about. If your broker fails to disclose these risks when making the investment recommendation, you can hold them liable for any investment losses you suffer.


As stated earlier, many investors encounter difficulty understanding the ins and outs of structured products. In fact, the obscure features contained in some structured products make them difficult to fully comprehend, even for investment professionals. Additionally, issuers can structure the notes any way they want. The seemingly endless possibilities can overwhelm even the most sophisticated investor. 


Most structured notes utilize a complex payoff structure, making it difficult for investors to assess the value, risk, and potential for growth through the term of the structured note. Depending on the note’s structure, you could have multiple structured products using different methods. Thus, before investing in a structured product, you should carefully read the prospectus to understand how the payoff will be calculated. 


Structured notes present serious liquidity issues for investors, as there is no secondary market for the products. Typically, an investor seeking to sell a structured note has two potential buyers: the issuing financial institution’s broker-dealer affiliate or the broker-dealer distributor of the structured note. The issuer will typically disclaim their intention to repurchase or make markets in the notes they issue. Thus, you should hold a structured product to its maturity date if possible. Otherwise, you’ll risk selling the product at a loss.

In limited circumstances, an issuer may allow you to redeem your note before maturity. However, they will likely require payment of a penalty for redeeming the note prior to its maturity date.

Creditworthiness of the Issuer

Structured products represent the unsecured debt obligations of the issuer. That means the issuer has an obligation to make payments on the note once it reaches maturity. Just because the issuer makes these promises does not necessarily mean they will follow through. If the issuer of your structured note files for bankruptcy, there is a good chance you will lose some or all of your investment. For example, many investors who owned structured products issued by Lehman Brothers incurred heavy investment losses when Lehman Brothers filed for bankruptcy in September 2008.

Common Types of Structured Notes

Below are some of the types of structured notes most commonly seen in cases of investment fraud.

Principal-Protected Notes (PPN)

Most structured notes do not offer principal protection. PPNs market themselves as notes that protect the initial investment in case the underlying asset declines in value. But the fine print on any PPN will tell you: The principal protection is subject to the creditworthiness of the issuer. If the issuer goes bankrupt, the investor will lose their entire principal.

PPNs do not pay a coupon but pay interest accrued upon maturity. They do not offer investors any payments until they reach maturity.

Reverse Convertible Notes

Reverse convertible notes combine a bond and a put option. A put options contract gives the purchaser the right to sell a particular share at a set price. These types of investments generate a return when shares decline in value.

These are short-term investments that typically mature in three months to a year.

Auto-Callable Yield Notes

Auto-callable yield notes are notes that offer a higher interest rate if the underlying asset closes at or above a specific price on periodic observation dates. These notes can be called – i.e., redeemed – at set observation dates if the price of the underlying share reaches a pre-determined price, known as the “call hurdle.”

Auto-Callable Contingent Barrier Income Notes

Auto-Callable Contingent Barriet Income Notes may be redeemed by the issuer if interest rates rise. At this point, the investor receives their principal amount plus any interest. The “Contingent Income Barrier” refers to the outcome if the underlying stocks fall below a certain amount. If the underlying assets drop below a certain price, the investor will lose part of their principal. 

Leveraged Structured Notes

Also called “Enhanced Participation Notes,” these structured notes use borrowed money to enhance the opportunity for especially high returns. As any broker should warn their customers, this enhanced chance of a bigger yield comes with the amplified opportunity for a total loss.

Market-Linked Notes

Market-linked notes may promise especially high yields based on the performance of a certain market. These products are particularly complex.

In the News: Morgan Stanley Structured Notes

Kurta Law is investigating Morgan Stanley Structured Investments. These were complicated market-linked notes that Morgan Stanley representatives allegedly misrepresented as “very safe” investments to investors with conservative investing goals. No structured notes should be labeled as “safe” since their performance depends on a variety of factors and can ultimately lose the investor’s entire principle. 

Did you Lose Money on Any of These Structured Products? 

Kurta Law is also investigating the following structured products. Contact a securities attorney if you lost money on any of these complex investments. Call 877-600-0098 or email

  • Barclays Moderna Structured Product, Due November 8, 2024
  • Barclays Barrier Dual Directional Notes, Linked to Plug Power Inc., Global Medium-Term Notes, Series A, Due September 23, 2024
  • BNP Paribas Contingent Income Notes Linked to the Worst of the NASDAQ 100 INDEX, THE RUSSELL 2000 INDEX, and the S&P 500 INDEX
  • Bank of America Contingent Income Auto-Callable Yield Notes Linked to the Common Stock of Peloton Interactive
  • GS Financial Corp. Contingent Income Auto-Callable Securities Based on the Performance of the Common Stock of Moderna, due November 29, 2024
  • JP Morgan Structured Investments: Trigger Jump Securities Based on the Performance of the Common Stock of Moderna, due January 24, 2023
  • Morgan Stanley Contingent Auto-Callable Securities, based on the performance of the Common Stock of Moderna, due May 22, 2024, with a six-month initial no-call period.
  • Scotiabank Contingent Income Auto-Callable Securities, based on the performance of Common Stock of Moderna, due January 2, 2026
  • Credit Suisse New York Reverse Convertible, Linked to the performance of the Common Stock of Beyond, Inc, due March 6, 2019
  • Credit Agricole Corp, Linked to the performance of L Brands (Now BBWI), Nutanix, and Twitter, due April 24, 2020
  • CitiGroup Global Markets Linked to Affirm, Fubo, and Twitter, due September 29, 2022
  • Creddit Suisse AG Linked to Dycom Industries, Roku, and Teva, due August 30, 2019
  • Credit Suisse AG London, Reverse Convertible Note Linked to IQIYI Inc. Due July 17, 2019
  • Societe Generale Reverse Convertible Note Linked to Lemonade Insurance. Due February 10, 2022
  • Credit Suisse London Reverse Convertible Linked to CrowdStrike, Lemonade, Snow. Due December 16, 2021
  • Societe Generale Reverse Convertible Linked to Universal Display Corporation and Weibo Corp. Due January 28, 2019




Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.