In general, Spanish courts are protecting those purchasers of preferred stock who do not meet the profile of a suitable investor for these products nor those who are sufficiently informed about the characteristics and risks. At the same time, Spanish courts are also ordering those financial entities to repay the invested amounts.
It is common knowledge that until 2011, sales by financial entities of preferred stock increased in Spain resulting in the fatal conclusion for the investors of these products. In the majority of these cases, the investors saw not only a decrease in return on investment or coupons guaranteed for them, but they also saw a decrease in all possibility to liquidate these stocks in the market or recuperate the investment, even if only partially.
This situation has led to increased legal claims that have given rise to new jurisprudence, which considers null those contracts of preferred-stock subscription and orders financial entities to repay the investor his or her specific quantities of acquisition with interest.
It is true that, in some cases, the purchaser of preferred stock was an experienced investor who understood more or less the underlying risk of purchasing preferred stock (notwithstanding that in that moment no one was truly aware of the black future that loomed ahead). In these cases, understandably, the jurisprudence has not been as benevolent.
However, because of these cases (and also because of Spanish judges), financial entities have tried to organize preferred stock not only for their most experienced investors but also for those with limited spending habits and those who live off pensions. In many cases, the financial entities proposed — if they did outright recommend — designating the savings of these individuals to the purchase of an undoubtedly complex product — preferred stock — whose benefits these same entities became responsible for explaining and whose risks on the other hand minimized.
The purely formal or non-material observance of the applicable law on the sale of this type of product (especially the Law of Market of Values) and the resulting breach of obligations of information on the part of the financial entities have caused Spanish courts to consider defective the consent of the investors of preferred stock. Articles 1.265 and those that follow in the Spanish Civil Code determine the nullity of the product sale and the repayment to the investors of the funds owed to them.
In any case, we do not find ourselves before a general rule that applies systematically within the Spanish courts. On the other hand, the Spanish courts, logically, judge each case by the investor profile of the purchaser; his or her financial history; the concrete circumstances of the contracting for the product; and other relevant information. From this point, a proper judicial assessment is fundamental when facing a financial entity in proceedings of these characteristics.
This article is not considered as legal advice