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Scientist Sues Bank for Accumulator Structured Product

Written By: Tiang Chuan on September 3, 2009 No Comment

Just after posting on The Return of Accumulators, The Straits Times today reported that a well-known scientist is suing Deutsche Bank for breach of legal duties and misrepresentation.

For a period of 4 months between November 2007 to February 2008, 34 accumulator contracts involving 4 banks,  Citigroup, UBS, Societe Generale and Washington Mutual,  were sold to the Dr Chang . Facing a potential loss of US$78 million, Dr Chang had to pump in more money, US$48 million in total from an initial investment of US$22 million. After unwinding the contracts, he ended up with a balance of US$1.6 million owing ot the bank. The bank has sued him for the US1.6 million. Now, Dr Chang is counter-claiming from the bank.

This is not the first legal suit involving Accumulators here. In November 2008, an Indonesian couple sued UBS Singapore over US$8.6 million loss involving Accumulators linked to currencies. The article can be found here.

Being a co-founder of the asthma drug Xolair, Dr Chang is no ordinary man in the street. The Indonesian couple mentioned above is involved in “textiles and construction, among other things”. Despite being extremely smart and successful, investors can still get burned in investment products. According to The Straits Times, “Mr Chang said:”As I had neither the time nor the expertise to manage my wealth, I relied heavily on the bank’s… advice for my investment decisions.”“. “The benefits of the product were highlighted, says Dr Chang, but the impact of the market price falling below the strike price was not… If the market price plunges, the loss is magnified.” Did that rang a bell?

If what Dr Chang said were true, then private banks might just work just like any salesworm. Adding fancy names like Priority, Privileged, Private in front of the word ‘bank’ might just become a marketing tool and has no meaning.

No matter the result of the legal suit and who’s proving right or wrong in the courts of law, investors, served by private banks or not, should be wary if only the benefits are highlighted while the downside is not.

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