UBS AG, Morgan Stanley and Ameriprise Financial received requests for information related to sales of reverse convertible notes.  Secretary of State's office for the state of Georgia sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors.  At issue is whether the firms broke state securities laws by sales of these structured notes.

Reverse convertibles are short-term bonds generally sold to individuals that convert into stock if a company's share price plummets.  Georgia began examining the securities in May after lawyers received complaints from investors who asked if the state had any open investigations, according to Vincent Russo, general counsel and acting assistant securities commissioner for the Secretary of State's office. 

Sales of structured notes, such as reverse convertibles, are soaring as investors seek out higher returns through investments that carry more risk.  The "complex" securities can be difficult for investors and brokers to evaluate, according to FINRA.  Regulators have elevated their scrutiny of the market, and some brokers have been fined for marketing reverse convertibles to elderly investors or those with little money.  Massachusetts, with an aggressive regulatory posture, also is looking into sales of the products.

Kenneth Lench, head of the SEC's structured products unit that investigated Goldman Sachs's subprime-mortgage investments, said that the Commission was examining whether brokers overcharged investors for the notes.   [IstockAnalyst.com, 7/22/11]