Posted On: April 11, 2011 by Blum Law Group

FINRA Sanctions UBS Nearly $11 Million for Down Playing Risks Associated with Lehman Principal Protected Notes Sold to its Customers

The Financial Regulatory Authority (FINRA) announced today that it has fined UBS Financial Services, Inc. $2.5 million, and ordered UBS to pay $8.25 million in restitution for omissions and statements regarding the “principal protection” feature of the 100% Principal-Protected Notes (PPNs) issued by Lehman Brothers Holdings Inc. prior to its September 2008 bankruptcy filing. FINRA is a self-regulatory organization that regulates all broker-dealers doing business in the United States, including UBS.

According to the papers filed by FINRA, during the period between March 17, 2008 to June 2008, in connection with the Lehman PPNs that UBS marketed and sold, UBS made statements and omitted certain facts through communications through some of its financial advisors, which had the effect of misleading certain customers regarding characteristics and risks associated with investing in Lehman PPNs, including material information regarding the product’s “100% Principal Protection” features.

FINRA further alleged that UBS failed to disseminate adequately to its financial advisors certain market information relating to Lehman’s financial conditions and UBS failed to establish an adequate supervisory system for its financial advisors training, marketing and sale of PPNs. FINRA also alleged that UBS did not adequately analyze the suitability of sales of Leman PPNs to certain UBS customers. As a result of the foregoing, FINRA alleged that UBS violated numerous FINRA rules and sanctioned it accordingly.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “This matter underscores a firm’s need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors. In cases, UBS’ financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer’s credit risk so investors would understand the magnitude of the potential losses.”

FINRA Enforcement's recent actions against UBS does not provide recovery for most of the investors in Lehman structured products and specifically states it does not preclude the customers from pursuing their own actions, including FINRA arbitration claims.

FINRA Enforcement’s findings are consistent with recent awards entered into by FINRA arbitration panels deciding these cases on behalf of individual investors. 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.

The nationally reconized securities law firm of Blum Law Group is representing investors in FINRA arbitration claims who suffered losses at UBS as a result of losses in Lehman principal protected notes and other Lehman structured products. Please contact us for more information and a free consultation.