Preferred Stocks

San Francisco Investment Misconduct Attorney

Preferred stocks are often sold to unwary investors as a safe alternative to bonds or common stock. However, inexperienced or uninformed investors usually do not realize that preferred stocks are only marginally safer than some common stocks, but have many more negative features than bonds. Moreover, investors are subjected to the elevated commission price they must pay to investment advisors.

San Francisco securities lawyer Jeffrey A. Feldman has represented investors in securities arbitration and litigation since 1991. He is trusted by industry professionals, colleagues, and investors for his experience and skill handling complex securities claims. He understands the industry as well as the risks posed to investors. He offers experienced legal advice to help clients understand their investments and determine if some form of negligence or misconduct was to blame for significant losses. Contact securities law attorney Jeffrey Feldman to discuss your situation in a free consultation.

Understanding Preferred Stocks

As with any stock, preferred stocks (also known as preferred shares) represent ownership in a company. The benefit of preferred stock - and frequently the only thing told to investors - is that preferred stock holders take precedence over common stock holders should the company file for bankruptcy and liquidate assets.

However, there are many risks to preferred stocks which investment advisors are notorious for concealing.

Dividends: While common stock holders receive fluctuating dividends (and sometimes no dividends at all), preferred stock holders generally receive fixed dividends from quarter to quarter - depending on the type of preferred stock. It is in this manner that preferred stocks are frequently compared to corporate bonds. However, the benefit of premium dividends also comes with risk.

Interest rates: Preferred stocks are more sensitive to fluctuations in interest rates than common stocks. When interest rates rise, investments in preferred stock can suffer significant losses in value. It is in this manner that common stock and corporate bonds are typically safer options in a tumultuous market.

Maturity: Preferred stocks often don't mature for 50 years or more. For all intents and purposes, you may never be entitled to your principal back, as opposed to corporate bonds, which typically mature in 10 years or less.

Types of Preferred Stock

• Cumulative preferred stock: If the company stops paying dividends and then subsequently resumes payments, preferred shareholders receive dividends (including retroactive dividends) before common stock shareholders.
• Non-cumulative preferred stock: If the company stops paying dividends to common stock shareholders, it is not required to continue disbursing dividends to its preferred stock shareholders - nor is it required to pay retroactive dividends once disbursement resumes. These are the most typical of the preferred stocks available today.
• Callable preferred stock: Most preferred stocks are callable after a certain amount of time at their issuance price, typically $25 per share. Therefore, preferreds will typically not trade for much above their issuance price. However, as we have seen recently, preferreds can plummet in price, and when the issuing company starts doing poorly, it can stop paying dividends on preferreds much more easily than it can on corporate bonds. Preferreds are a "Heads I win - Tails you lose" proposition for the issuing companies.
• Convertible preferred stock: Convertible preferred stocks can be exchanged for common stock after a specific date. However, investors frequently do not realize that some convertible preferred stock investments actually require conversion into common stock at a specific date. In addition, such preferred stocks often have a longer maturity date. A laddered bond portfolio may be a better investment strategy.

Stockbrokers and investment advisors are aware of the risks of preferred stocks. However, they recommend these investments to earn a higher commission - to the detriment of the investor. Failure to advise investors of such risks and failure to recommend suitable investment options is negligence and a breach of their fiduciary duty.

If you have suffered significant financial losses in preferred stock investments, Mr. Feldman can analyze the actions of your broker or advisor and determine if there is a valid claim to recover your losses. Contact investment misconduct attorney Jeffrey Feldman for experienced legal representation in California or nationwide.

Handling Securities-Related Disputes, Arbitration, and Litigation
in California and Nationwide-Call (415) 391-5555

Free Initial Consultations-Contingent Fee Arrangements

Jeffrey A. Feldman, Attorney at Law