Rob Brunhild trusted his broker when he was sold principal-protected notes underwritten by Lehman Brothers, noting that the broker implied that the notes were like Treasuries. His expectations for a solid return were dashed when Lehman went under, wiping out his investment. He said his family lost $275,000 on the notes.
“I had to tell my mother,” Brunhild said. “Mom lived off of this money.”
His story is one of many in the report released today on structured investment products by John Wasik. Wasik took a deep look at the investment category — which includes products such as auction-rate securities, principal-protected notes and reverse convertibles. All told, Wasik estimates that such investments have cost investors at least $113 billion.
These instruments seem to be the answer to many investors prayers — a way to gain an additional boost in interest while maintaining safety. However, the structures of these investments are exceptionally complex, and many investors have no idea what they’re actually buying.