SEC investigates the sale of complex bonds – WSJ

March 31 (Reuters) – The Securities and Exchange Commission
is investigating whether Wall Street firms sold a complex type
of bond without clarifying the risks attached to it, the Wall
Street Journal said, citing people familiar with the matter.

The financial product known as “reverse convertible notes”
pays interest but also is tied to the performance of an
underlying stock, so if the stock falls, investors could lose
money, the WSJ said.

The regulators are also looking into the disclosures of
potential conflict of interest, such as a bank selling a note
linked to the stock of a company it is advising, the newspaper
said.

In addition, Wall Street regulator Financial Industry
Regulatory Authority was likely to impose a large fine against a
brokerage firm for improperly selling reverse convertible notes,
the WSJ said, citing people familiar with the matter.

But the newspaper said the companies being targeted by FINRA
could not be determined, and it was not clear whether the SEC’s
investigation would result in civil charges against underwriters
or sellers of the notes.

A spokesman for the SEC and a spokeswoman for FINRA declined
to comment to the Wall Street Journal.

The SEC and FINRA could not immediately be reached for
comment.
(Reporting by Megha Mandavia. Editing by Jane Merriman)

SEC investigates the sale of complex bonds – WSJ