Shepherd Smith Edwards and Kantas Investigates Investor Claims Involving SBLOC Losses

Many SBLOC Investors Not Apprised of Risks

If you are an investor who suffered significant losses from securities-backed line of credits (SBLOCs) and your brokerage firm and their broker neglected to tell you about the risks involved, our investment fraud lawyers at Shepherd Smith Edawrds and Kantas (SSEK Law Firm) would like to talk to you. SBLOCs are not for every investor and they are certainly not for those that are unable to handle too much risk.

What are SBLOCs

Securities-backed line of credits are loans. Brokers have been known to promote them as an easy and not very costly way to get cash by allowing investors to borrow against the assets already in their portfolio but without needing to liquidate these securities that are then held as collateral. Meantime, the assets can continue to trade in the portfolio. An investor can then use the funds for whatever purpose they’d like except for to trade and buy securities.

Investors who opt for an SBLOC, however, must make interest-only payments and the loan is outstanding until it is paid back in full.

Risks of SBLOCs

Not everyone can qualify for an SBLOC. Usually, an investor would need assets worth at least $100K in market value. Also, there are risks involved, such as the following:

  • Potential tax repercussions.
  • The possibility an investor might have to sell their holding, which could impact their long-term investment objectives.
  • Should the value of the securities being held as collateral go down, an investor may have to come up with additional money quickly.
  • A failure by an investor to fulfill a maintenance call could result in a firm selling the securities.
  • Positions could end up being liquidated.

Broker Compensation from SBLOC Sales

Those who opt for an SBLOC should know that brokers who sell these to customers stand to earn added compensation or a portion of the fees resulting from the sales. Some brokers may even make money quarterly depending on how much a customer has borrowed on a credit line. There are also the fees that the broker makes from the assets being held as they can still be traded.

Brokers should only recommend loans and other investments that are in a client’s best interest. It is important that they only recommend SBLOCs to customers for whom they are suitable and who can handle the risks involved.

Misrepresentations and omissions of key information can be grounds for a broker fraud claim. Brokers must make sure that investors understand the nature of SBLOCs and what the risks can mean for their portfolio’s future. If you believe that a broker and his/her broker-dealer was negligent in recommending an SBLOCK to you, there may be grounds for filing a broker fraud claim to help you recover your losses.

SBLOC Investor Lawyers

For almost three decades, our SBLOC investment lawyers at SSEK Law Firm have been hard at work representing investors throughout the US in fighting to get back losses caused by fraud or negligence. Your first consultation with us is a free, no obligation case assessment to help you explore your legal options.

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