On December 13, 2017, an Arbitrator from the American Arbitration Association rendered an award totaling approximately $1,000,000 against Allegis Investment Advisors, LLC (“Allegis”). The Arbitrator found that Allegis breached its fiduciary duty by investing clients’ funds into entirely unsuitable, and high risk option strategies. There will likely be more claims brought against Allegis, as the total amount of potential damages to its clients exceeds $33,000,000. Allegis is a SEC registered investment advisory firm headquartered in Idaho Falls, ID. It has approximately $654 million in assets under management, and caters primarily to high net worth individuals.
Selling very large numbers of Put options on indexes is an incredibly risky investment strategy. Specifically, the strategy Allegis implemented entailed the collection of a small premium on the Russell 2000 index (“RUT”) – from the option sale – however risked the possibility of complete and total loss of capital supporting the trade. Allegis employed this RUT option strategy with certain clients’ life and retirement savings.
Allegis neglected to inform their clients that this RUT option strategy involved a massive asymmetrical risk reward ratio with potential for complete and total loss of capital. With a derivative strategy such as this, approximately 97% of the time the options will expire Out of the Money, and the small premiums collected from the RUT option sale can be kept. However, approximately 3% of the time the price of the RUT Index could move far enough from its expected volatility, leading to complete loss of capital.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of sales practice abuses, such as breach of fiduciary duty, investment and securities fraud, and unsuitability. Lax & Neville LLP has extensive experience successfully prosecuting cases involving complex financial derivative products such as those used by Allegis. If you are a victim, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.