Lehman Brothers filed for bankruptcy three years ago, leaving investors in Lehman Brothers structured notes with essentially worthless notes. In the last three years, arbitration panels, courts and securities regulators have all recognized that UBS down played the risks associated with Lehman structured notes, including principals protected notes sold to its customers.
In 2009, the New Hampshire Bureau of Securities Regulation filed a cease and desist and order and sought other relief against UBS, alleging unfair sales practice relating to its sale and recommendation of Lehman structured products to New Hampshire investors. Last month UBS settled this matter with the State of New Hampshire, agreeing to pay a fine, investigation costs and an administrative payment.
In 2011, the Financial Industry Regulatory Authority (FINRA) fined UBS $2.5 million and ordered $8.25 million in restitution for UBS’s misconduct in selling Lehman so-called Principal Protected notes. FINRA’s settlement with UBS reveals UBS’ improper sales tactics relating to Lehman structured products. Although sanctioning UBS almost $11 million, it provides restitution for only a limited number of customers and specifically holds that investors are free to pursue their claims directly against UBS.
Most recently, a federal judge in New York ruled in a UBS-Lehman class action case that the offering documents that described Lehman’s purported “principal protection” notes were false and misleading. The Court did not accept UBS’s defense that the offering materials contained risk disclosures. The Court ruled that “a misleading statement displayed prominently and in numerous places may not be cured by inconspicuous and scattered warnings.” The court found that the principal protection statements were displayed more prominently and frequently than the warning statements.