Mis-representation on Credit Linked Notes

A senior lawyer told me that the law is to be seen in this context:
"The law works on the basis of freedom of contract and caveat emptor, so, in these cases, unless there has been misrepresentation or unless it can be shown that the banks have taken on a special duty of care because of a fiduciary relationship (which most bank documents expressly exclude) the buyer is supposed to know what he is buying and the risks thereof."

MY VIEW:
Clearly, the relationship manager did mis-represent the product that they sold to the investors, who were generally risk averse. The question is, "did the RM understand the product?" Most likely, they did not. If this were the case, surely, they must have mis-represented the product?

The strategy for the investor is to provide clear proof that there was mis-representation. This can be in a sworn statement. Better still, it should be supported by an impartial witness or written documentation.

Can you solve these 4 shapes?

DownloAD this PDF. Cut the 4 pieces. Solve the 4 shapes. You can cut the shapes from cardboard to be more durable.

Checks and balances

Who decide how much White House staffers are paid? Read this article.

ATE (After The Event) Insurance

The ATE insurance covers the litigation cost and is now available through an insurance broker operating in Singapore.

I have written a paper to brief the insurance broker about the legal position on the credit-linked note and ask them to see if insurance is available for the investors to take legal action against the distributors.

Credit cards availabe in Singapore as at 15 May 2009

Here is a table showing the credit cards available in Singapore as at 15 May 2009.

Fixed deposit interest rate as at 15 May 2009

Here is a table showing the fixed deposit interest rate offered by banks in Singapore as at 15 may 2009. It is now being updated to show the latest available rates. Hope you find it useful.

Is this negligence?

Take this hypothetical example:

1. You are a senior manager of a bank with several branches
2. An investment bank approaches you to sell their innovative products and offers your bank an attractive commission of 3% to sell the product.
3. As the product looks attractive, you are confident of selling $50 million in your branches in one week. This will give a commission of $1,500,000. After deducting the incentive to your relationship managers (say 1%), you can make $1,000,000 for your bank.
4. You agree to distribute the product and sends your relationship managers for training by the product issuer. This is a short talk covering only the positive features of the product, i.e. "how to sell". It does not cover the prospectus and the negative features (as they do not help in the sales).
5. The product issuer advises you to get a disclaimer signed by the retail customers to waive liability for any loss on investing in the product.

The product turns out to be quite different from what you understood it to be. You realised to your horror, that it includes components such as credit default swaps and collaterialised debt obligations (that your bank or its relationship managers did not realise earlier).

As financial advisers, with responsibilties under the Financial Advisers Act), were your relationship managers negligent in not understanding the product that was sold to the retail customers? Does your bank share in this negligence?

What do you do?
a) Hide under the disclaimer clause?
b) Admit your mistake and offer to share the loss with the investors?