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Steepener Structured Notes

Steepeners are structured products. They are not for most retail investors, retirees, or other conservative or unsophisticated investors with portfolios that are unable to handle a lot of risk. Yet, there are firms and brokers that have aggressively recommended steepeners and continue to sell these complex strategies even when they are an unsuitable investment for a customer. At Shepherd Smith Edwards and Kantas (SSEK Law Firm), we represent investors seeking to recover losses involving their steepener investments from the broker-dealers and registered representatives that sold them these risky financial products.

What are Steepeners?

Steepeners are structured products that may come from a security or an index, a basket of securities or indices, a commodity, a foreign currency, or a debt issuance. A type of interest rate swap in which one party pays the other a fixed rate in return for a floating rate-this is the difference between the short- and long-term rates of the bonds involved-a steepener allows investors to bet on the shape of the yield curve, which is a result of the two maturity rates.

While steepeners generally offer a high teaser coupon rate for the first year, after that the yield curve's steepness determines the variable interest rates that are offered. This means that as the yield curve becomes flatter, the yield paid by a steepener significantly declines.

Steepener notes are high risk, illiquid, may possess certain characteristics that can cause them to lose capital or experience a drop in interest payments, and are generally highly leveraged-sometimes by up to 50 times. This is part of their draw for investors wanting huge returns, but it also dramatically increases the risk of loss.

That is because while the steeper the "curve," the higher the returns, when the difference between the interest rates grows smaller, the flatter the yield curve becomes. This is when losses can happen and investors may even have to pay interest. Not only that, but because steepeners are not freely traded, an investor may end up having to sell these structured notes at a huge loss just to be rid of what has become a costly investment.

Brokers and Advisors Made Misrepresentations and Omissions to Steepener Customers

Steepeners are not just complex investments, but also they are difficult to explain or understand, which is why so many investors end up getting blindsided when they do lose money. They were unaware of what a steepener note is, how it works, or the risks they were taking one. Some investors may even be under the impression that steepeners are safe, low risk investments. Imagine the shock of sustaining a loss of 50% or more that you never saw coming!

Regardless of how challenging any financial product is to explain, stockbrokers and investment advisers have a duty to make sure that a customer understands every investment they are buying. If someone is too inexperienced to comprehend what a steepener, no matter how large their portfolio, then the registered representative shouldn't recommend or sell it to them.

Otherwise, any misrepresentations and omissions made, whether when communicating with an investor, including in marketing collateral, can be grounds for a steepener investor fraud claim should significant losses result.

It is the job of brokerage firms to properly supervise their brokers and adviser to ensure that all investments recommended are suitable for customers. Yet a number of firms have sold steepener structured notes to customers even when they were too high risk for them or not in line with an investor's goals. Many of these broker-dealers aggressively marketed these complex notes without disclosing many of the material risks. As a result, huge losses were sustained by many.

Steepener Investment Fraud Attorneys

SSEK Law Firm has recovered tens of millions of dollars for investors against the broker-dealers and their registered representatives who sold them unsuitable investment products. We have a combined more than a century's worth of experience in securities and the securities industry and have successfully represented thousands of investors. Contact our steepener investment fraud lawyers today for your free consultation.

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