BANGALORE (Reuters) - The Securities and Exchange Commission is investigating whether Wall Street firms sold a complex type of bond without clarifying the risks attached to it, the Wall Street Journal said, citing people familiar with the matter.
The financial product known as "reverse convertible notes" pays interest but also is tied to the performance of an underlying stock, so if the stock falls, investors could lose money, the WSJ said.
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The regulators are also looking into the disclosures of potential conflict of interest, such as a bank selling a note linked to the stock of a company it is advising, the newspaper said.
In addition, Wall Street regulator Financial Industry Regulatory Authority was likely to impose a large fine against a brokerage firm for improperly selling reverse convertible notes, the WSJ said, citing people familiar with the matter.
But the newspaper said the companies being targeted by FINRA could not be determined, and it was not clear whether the SEC's investigation would result in civil charges against underwriters or sellers of the notes.
A spokesman for the SEC and a spokeswoman for FINRA declined to comment to the Wall Street Journal.
The SEC and FINRA could not immediately be reached for comment.
(Reporting by Megha Mandavia. Editing by Jane Merriman)