How to Recover Investment Losses in Autocallable Structured Notes and Products

If you have lost money investing in autocallable structured notes or other types of structured products, please call our office today.  You may be able to recover some or all of your investment losses through securities arbitration. 

The securities and investment fraud lawyers at Israels & Neuman PLC have handled many cases involving structured products and can quickly determine if you are eligible to bring an arbitration case to try to recoup your losses.  Our consultations are always free and we work on a contingency fee basis, meaning you don’t pay us unless we successfully recover money for you.

We recently read an excellent 5-part article series on autocallable structured products, written by Craig McCann and Mike Yan of SLCG.  Mr. McCann is an expert witness.

The first part of the original article can be found here, but we summarized it for you below.

Summary:

Autocallable structured products have seen a dramatic rise in issuance over the past decade, but they come with significant risks that many investors do not fully understand.

Understanding Autocallables

Autocallable structured products are complex financial instruments that offer high yields through periodic coupon payments. However, their structure includes embedded short put options that expose investors to substantial risk.

At maturity, an autocallable note will return its face value only if the underlying stock price remains above a set threshold (often referred to as the “knock-in level”). If the stock price falls below this level, the investor will receive a payout based on the stock’s lower value—often resulting in significant losses.

These products are often marketed as providing attractive returns, but the reality is that they can leave investors with devalued assets instead of their initial investment.

The Growth of Autocallables: A Surge in Issuance

McCann and Yan’s article, referenced above, documents the explosion in autocallable note issuance over the past ten years. Their data shows:

• 2007-2013: 889 issuances, averaging $3.1 billion per year.
• 2014-2018: 4,809 issuances, averaging $11.6 billion per year.
• 2019-2023: 11,122 issuances, averaging $27.9 billion per year.

Over $92.5 billion worth of autocallables have been issued in just the last three years alone. This rapid increase reflects both their popularity with financial institutions and the hidden risks many investors face.

Why Are Autocallables So Risky?

Several features make autocallables particularly dangerous for retail investors:

1. High Coupon Payments Are Misleading
   While autocallables pay attractive yields, these payments are not guaranteed. Some notes require the underlying stock to stay above a certain level for the coupon to be paid. If the stock price declines, investors may receive little to no income.
2. Automatic Call Feature Favors Issuers
   If the stock price remains stable or rises, issuers can call the note early, returning the investor’s principal—but without any further upside. This structure benefits the issuer while capping potential gains for the investor.
3. “Worst-of-Basket” Notes
   Some autocallables track multiple stocks, and investors receive payouts based on the worst-performing stock in the basket. This further increases the likelihood of losses.
4. Limited Transparency and Hidden Risks
   Brokerage firms market these products as safe, often downplaying the risks. However, as McCann and Yan point out, autocallables are simply a more complex version of reverse convertibles—structured products that suffered massive losses in 2008-2009.

Real-World Examples: Autocallables Gone Wrong

McCann and Yan highlight specific examples of autocallables linked to Lucid Group (LCID) stock, showing how these products can quickly become worthless:

• One note linked to Lucid and Uber was called early, allowing investors to exit without loss.
• However, four other Lucid-linked notes failed to pay any coupons, as Lucid’s stock price dropped from $40 to less than $3.
• Investors in these notes are now likely to receive less than $10 per $100 face value at maturity—an enormous loss.

What Investors Should Do

If you have been sold an autocallable structured product and experienced losses, you may have legal options. These products are often marketed to potential investors without fully explaining their risks, potentially leading to misrepresentation or unsuitable sales practices by brokers.

At Israels & Neuman, PLC, we specialize in representing investors who have been harmed by unsuitable investments and misrepresentations. If you or someone you know has suffered losses from autocallables or other structured products, contact us today at (616) 280-4303 for a free consultation.