Barry Pechenik (CRD#: 1720138), a registered representative with Morgan Stanley (CRD#: 149777) in Dallas, Texas, is currently the subject of a customer complaint, according to published reports. An elderly investor alleges that this broker used an unsuitable options strategy, leading to significant investment losses. Read on to learn more.
An elderly customer claims she incurred more than $500,000 in investment losses as a result of Barry Pechenik’s investment recommendations. The investments were:
- structured products
- Master Limited Partnerships (MLPs)
- oil and gas equities
- investments based on Harvest Volatility Management’s Collateral Yield Enhancement Strategy (CYES), a complex options strategy dependent on the customer’s use of margin
The elderly investor further alleges that Barry Pechenik made misrepresentations and omissions, and breached his fiduciary duty. She also claims that there was a gross lack of supervision by Morgan Stanley. The elderly customer asserts she was clear with Barry Pechenik and Morgan Stanley that she wanted a low-risk investment strategy because she intended to live off a trust for her retirement. Barry Pechenik assured her that she was taking on only minimal risk—all the while recommending she invest in structured products and other risky investments.
What exactly were these investments? Read on to learn more about the risky and speculative investments that Barry Pechenik allegedly recommended.
Structured products are securities derived from a single security, a basket of securities, a market index, a commodity, a foreign currency, or a debt issuance, according to FINRA. There are many different types of structured products, which can be attractive to investors because they often offer an interest rate or coupon rate well above the market rate. Some, but not all, structured products offer so-called “principal protection,” but it’s important to understand that you could still lose your principal if the offering body becomes insolvent.
All investors should approach oil and gas equities with caution, but Texas investors should pay particular attention to these investment products given Texas’s oil industry. While it is easy to get caught up in the prospect of “striking it rich,” make sure that you understand the risks involved in oil and gas investments. Ask:
- Is my broker experienced in selling oil and gas investments?
- What sort of vetting/due diligence process do these investments go through?
- Does the broker have a personal relationship with the oil/gas promotor or are they free from conflicts of interest?
Do you want more information? On our Texas state page, we have written more about oil and gas investments and what to look out for when it comes to these investments.
Master Limited Partnerships (MLPs) are exchange-traded partnerships focused on minerals and natural resources, according to the SEC. A given partnership might focus on the development, mining, processing, transportation, or exploration of minerals and natural resources. MLPs also hold assets like oil and gas pipelines, which many consider to be consistently cash-generating (although this is not always the case). As with oil and gas equities, it’s important to consider the specific risks involved with these speculative investments. Most MLPs are sensitive to changes in oil and gas prices, which can make these investments far from a “sure bet.”
In addition to understanding the investment products Barry Pechenik allegedly recommended, it is also important to understand the investment strategy he allegedly employed in this elderly Dallas investor’s portfolio. Harvest Volatility Management’s Collateral Yield Enhancement Strategy (CYES) is a complex options strategy dependent on a customer’s use of margin (which is risky for investors because it involves borrowing money from the firm and using the securities in one’s portfolio as collateral). This strategy was sold to many Merrill Lynch brokerage customers. The strategy involves so-called “Iron Condor” options positions. These options positions seek to generate premium income by hedging short put and call options. Barry Pechenik is alleged to have recommended this options strategy even though this elderly Dallas investor did not know what “put and call options” were.
If Barry Pechenik was your broker and you have questions about your investments, don’t hesitate to contact the securities attorneys of Fitapelli Kurta to learn about your options for investment loss recovery. Call (877) 238-4175 or email firstname.lastname@example.org for your free case consultation with a securities attorney.