Structured Investment Products
Structured Investment Products, also known as "SIPS," are customized
investment products marketed by Wall Street brokerage firms to high net
worth individuals as well as institutional investors. In theory, SIPS
are designed to provide a customized investment product addressing a specific
investor's risk tolerance. The varieties of SIPS are limited only
by the creativity of the Wall Street banks that conceive, package and
market them. The best known SIPS were the now infamous "Principal
Protected" notes issued by Lehman Brothers prior to its bankruptcy
in September 2008. In the years leading up to its bankruptcy, Lehman Brothers
sold hundreds of millions of dollars of Principal Protected Notes, which
became next to worthless following Lehman Brothers' bankruptcy. Other
Wall Street firms also sold Principal Protected Notes, marketed as "Capital
However, SIPS are not limited to "Principal" or "Capital
Protected" Notes. SIPS commonly feature the use of derivatives (securities
that derive their value from another security) that are linked with a
single security, a basket of common stocks, preferred stocks or fixed
income securities, a market index, a note or a foreign currency. An investor's
return on a SIP is linked to the performance of the underlying security
and the pay-out structure can make assessment of risk extremely complex.
In its Notice to Members, 05-59, the National Association of Securities
Dealers (NASD) (now the Financial Industry Regulatory Authority, or FINRA)
expressed its concern that Wall Street firms "may not be fulfilling
their sales practice obligations when selling [SIPS], especially to retail
Typically, SIPS are marketed by Wall Street firms using proprietary names
such as PROPELS, PLUS, SPARQS, CORTS, TRACERS, ARES, BARES, SEQUINS, STRIDES,
ELKS, MERITS, TARGETS, MITTS, EAGLES, CYCLES, TEARS, LUNARS and LAZARS.
Regardless of the name, SIPS are complex, difficult to value and very
lucrative to the large Wall Street banks that create and market them.
As many investors have discovered since 2008, SIPS, initially marketed
as a safe way to increase investment returns without additional risk,
can substantially heighten portfolio volatility and thus increase portfolio
risk. In requiring heightened supervision of complex investment products
such as SIPS, FINRA concluded that "[t]he decision to recommend complex
products to retail investors is one that a firm should make only after
the firm has implemented heightened supervisory and compliance procedures."
FINRA, Regulatory Notice, 12-03.
If you purchased SIPS in your investment portfolio and suffered significant
declines in their value, you may have received unsuitable investment advice
from your financial advisor or not been advised of all material risks
associated with your investment in a SIP. To determine your legal rights,
please contact Pearson, Simon & Warshaw, LLP's senior securities
litigation counsel, George Trevor, for a confidential evaluation of your
portfolio. You may contact Mr. Trevor at
firstname.lastname@example.org or telephone (415) 433-9000.
For additional information about SIPS, go to: