An arbitration panel awarded an investor more than $2.2 million for losses resulting from the purchase of structured notes issued by Lehman Brothers, which were purchased from UBS Financial Services, Inc. This is the largest arbitration award to date against UBS resulting from their recommendation to purchase the Lehman notes. The arbitrators awarded the investor the complete amount of his loss.
The recovering investor in this arbitration is the CEO of insurance giant CNA Financial Corp. Notably, the investor’s experience and sophistication didn’t seem to influence the arbitration panel’s findings that UBS was liable for their recommendations, providing further evidence that arbitrators are looking closely at UBS’s negligence and similar misconduct in recommending the structured notes to the detriment of their customers. Moreover, UBS’s publicly stated position that any losses related to these structured notes were the direct result of the “unexpected and unprecedented failure of Lehman Brothers” did not appear to impress yet another arbitration panel that held UBS liable for their customers’ losses.
Claims that UBS failed to disclose the specific material terms of the Lehman Brothers notes and obscured the risks inherent to the Lehman Brothers notes, namely that the principal was only protected by Lehman Brothers, continue to gain traction with FINRA arbitration panels. At its most basic form, a principal protected note is nothing more than an unsecured promissory note that is linked to a referenced security. In this case, the notes were issued by Lehman Brothers, and underwritten by UBS – a very cozy relationship that provided UBS with material information relating to the real risk involved with these notes. Unfortunately for UBS’s customers, UBS failed to warn its customers about the true risk of these notes, and now is paying the price in the form of paying large arbitration awards.