What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: September 3, 2019

Has the Harvest Volatility Management Collateral Yield Enhancement Strategy (“Harvest CYES”) been a deceptively bitter harvest for you? You are not alone in your complaint.  Well known brokerage firms like Merrill Lynch, Morgan Stanley, J.P. Morgan, Schwab and Fidelity have sold the product from the 11-year-old little known vendor of options-focused portfolios.  But as time goes by dozens of investors have complained they weren’t told by their brokers that the product is excessively risky.  Many of these investors were seeking low-risk places to put their money.

Harvest CYES is an complex “Iron Condor” investment structure that was peddled by multiple asset management firms in recent years.  Investopedia describes iron condor as a strategy  “constructed by selling one call spread and one put spread (same expiration day) on the same underlying instrument.”  Most often, the underlying asset is one of the broad-based market indexes, such as the S & P 500 Index (SPX); the NASDAQ-100 Index (NDX); or the Russell 2000 Index (RUT), the financial dictionary adds.

Investopedia goes on to show the head-scratching complexity of the Harvest Volatility Management and Collateral Yield Enhancement Strategy and its ilk by saying it involves selling an at-the-money put with a strike price closer to the current cost of the underlying asset.  “Sell one at-the-money call having a strike price just above the current price of the underlying asset. Buy one out-of-the-money call with a strike price further above the current price of the underlying asset. The out-of-the-money call option will protect against a substantial upside move,” Investopedia explains.

“The Yield Enhancement Strategy Hits Wealthy Investors Hard” was the headline of a Seeking Alpha article in March.  Options and put and calls are part of a foreign language for most investors and usually arent suitable or appropriate for most investors, especially those who are conservative or retired.

“Adverse market conditions” of Horizon’s investment strategies (translation: they were losing money) led Victory Capital to cancel its planned acquisition of the firm in April.  The deal had been announced the previous September. Unfortunately, most clients who were sold the product didn’t understand the risks.  In part the reason was because the brokers selling the product didn’t understand the actual terms of the products in violation of the Financial Industry Regulatory Authority (FINRA) conduct rules that govern brokers behavior.

Fortunately, legally financial advisors who sell the product have a legal obligation to understand the key features of the investment.  Under the rules of FINRA brokers have a duty to make suitable investment recommendations. But they also have a duty to understand and know their product.  For example, FINRA requires brokers to understand the “unique characteristics and risks…as well as operational features that could affect the products performance.”

The failure to do so may cause the brokerage firm to have to pay the investor back in the form of damages.  These damages can be secured in the FINRA arbitration forum where investors can request losses, attorney fee and costs.  Please call our law firm in Chicago for a no cost review by an experienced securities attorney.







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