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Shepherd, Smith, Edwards & Kantas Investigating Claims Related to Securities Backed Lines of Credit

March 13, 2020

NEW YORK, March 13, 2020 (GLOBE NEWSWIRE) -- The law firm of Shepherd, Smith, Edwards & Kantas, LLP (SSEK Law Firm) is investigating claims involving securities-backed lines of credit.  Securities-backed lines of credit, or SBLOCs, are loans that an investor can take out against their investment portfolio assets without those assets having to be liquidated.  Securities firms often herald securities-backed borrowing as an easy, low cost alternative to investors.  However, the risks of these loans are often downplayed and not fully understood by or adequately discussed with investors. 

Using a securities-backed line of credit is not appropriate for all investors and can introduce considerable volatility as well as significant risk into an investment portfolio.  The securities used for collateral continue to be exposed to market fluctuations that can impact the loan.  If, for example, the value of the securities dips below a threshold the firm sets, the investor may be asked to increase their collateral or pay back the loan immediately.  Failure to do so could result in an investor’s account being liquidated, often resulting in catastrophic losses coupled with substantial tax exposure.

The Financial Industry Regulatory Authority (FINRA) and the SEC’s Office of Investor Education and Advocacy issued an alert concerning SBLOCs, advising investors to be cautious of these products and to increase awareness about the risks of these products, such as:

  • Identification of actual SBLOC lender (securities firm or 3rd party)
  • Terms of the Agreement (ie - calculation and payment of interest fees)
  • Impact on their holdings
  • Impact of negative market fluctuations on loan
  • Payment terms and credit risk
  • All possible costs to investor, expected and unexpected
  • Associated compensation to broker

Brokerage firms have a duty to only make investment recommendations that are suitable to the investor’s profile and stated investment goals, without regard for the financial incentives or profit to the firm. 

If you or someone you know has a securities-backed line of credit and suffered losses due to the liquidation of assets in your portfolio, please contact SSEK Law Firm today for a free, confidential evaluation of your account(s).  Our lawyers and staff speak Spanish as well as English and are ready to assist with your concerns.

Contact Info:  800-259-9010
Luis Acevedo:  lacevedo@sseklaw.com

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