Stock Attorneys Blog

The Securities and Exchange Commission (SEC) is reviewing how financial companies market principal protected notes (PPNs), according to Bloomberg news. The SEC's inquiry is focused on how companies describe the products' risks and whether the term "principal protected" is misleading and implies that the investment is guaranteed not to fall in value.

UBS had sold more than $1 billion of PPNs, described as safe investments backed by Lehman Brothers that were "guaranteed" against loss of principal. Au contraire, following Lehman Brothers' bankruptcy filing on September 15, 2008, the PPNs are now in default causing the holders of these PPNs to become senior unsecured creditors in the Lehman bankruptcy proceeding. Practically speaking, these investors are left with virtually worthless investments.

PPNs have reemerged after losing much of their appeal during the time of the Lehman Brother collapse. The SEC's delve into the sales and marketing practices of PPNs is a likely an attempt to ensure that investors are not lulled again with a false sense of security associated with these products.

Continue reading "SEC Looking at the Sale of Principal Protected Notes" »

FINRA issued a regulatory notice this month to remind brokerage firms of their sales practice obligations relating to the sale of principal protected notes. The executive summary provides:

The retail market for principal-protected notes (PPNs) has grown in recent years, in part because they are often marketed as combining the relative safety of bonds with a potential for growth not available with traditional fixed income products. However, these products are not risk-free, and their terms and structures can be complex. Firms must ensure that their promotional materials or communications to the public regarding these products are fair and balanced, and do not overstate either the level of protection offered or an investment's potential returns. Firms also have a duty to ensure that their registered representatives understand the risks, terms and costs associated with these products, and that they perform an adequate suitability analysis before recommending them to a customer.

Among other things, the FINRA notice reminds brokerage firms that in marketing PPNs, they must ensure their communications accurately and fairly explain how the securities operate. Promotional materials must disclose the level of principal protection offered, the credit-worthiness of the guarantor, the potential returns and pay-out structure, the investor’s ability to access funds and any costs or fees that might affect the return of principal. FINRA also advises representatives to perform an adequate suitability analysis based on the aforementioned aspects and components of the PPN.

The risks of PPN's were highlighted with the highly publicized Lehman Brothers' Principal Protected Notes. Brokers at UBS and other firms pitched these products as similar to buying a basket of stocks (such as the S&P 500) but with the added benefit of up to 100% principal protection if the market went down. However, Lehman Brothers declared bankruptcy in September 2008 and the notes became worthless.

Blum and Silver, LLP is actively involved in representing investors in PPN cases. For further information, please contact us.

The New Hampshire state securities regulator has accused a unit of UBS AG, of recommending unsuitable investments to customers who put their money into complex securities underwritten by Lehman Brothers Holdings, Inc.

According to the New Hampshire Bureau of Securities Regulation, UBS allegedly represented the securities as “safe” investments to clients, guaranteeing them “principal protection.”

The bureau alleges that state investors lost $2.5 million in various structured products backed by Lehman Brothers, which filed for bankruptcy on Sept. 13, 2008. By not adequately disclosing these risks, UBS engaged in “dishonest and unethical business practices,” the bureau charges.

“UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions,” said Jeff Spill, the bureau’s deputy director for enforcement. “The safety of these products was exaggerated. We believe UBS engaged in unfair and unlawful sales practices when presenting these investments.”

Blum & Silver, LLP is currently investigating the sale of these and other products to our clients resulting in losses of over ten million dollars.

The securities law firms Blum & Silver, LLP (www.stockattorneys.com) and Sallah & Cox, LLC (http://www.sallahcox.com) announce that they have been retained to represent investors who suffered losses at UBS as a result of losses in Lehman notes and Lehman preferred shares.

These securities were typically recommended as safe investments. However, many investors allege they were not warned of the risk and suffered extraordinary losses as a result. Blum & Silver, LLP and Sallah & Cox, LLC are pursuing arbitration claims before the Financial Industry Regulatory Authority (“FINRA”) on behalf of aggrieved investors, including claims of misrepresentation, omissions of material facts, unsuitability, and negligence.

We believe investors will achieve better results on their claims through individual arbitration claims rather than through the class action process.

For additional information or to further discuss these matters, investors should contact either:

Scott L. Silver, Esq.
Blum & Silver, LLP
1-877-STOCK LAW (1-877-786-2552)
www.stockattorneys.com

James D. Sallah, Esq.
Sallah & Cox, LLC
1-888-SEC- ATTY (1-888-732-2889)
http://www.sallahcox.com/

Blum & Silver, LLP is a nationally-recognized securities law firm headquartered in South Florida, with a satellite office in New York, representing investors worldwide with their claims for losses due to stockbroker misconduct and brokerage firm negligence in securities litigation and arbitration matters. The firm has successfully recovered multi-million dollar awards for its clients against the country’s top brokerage houses.

Sallah & Cox, LLC is located in Boca Raton, Florida. The firm consists of former SEC Enforcement attorneys who represent clients throughout the United States and Latin America in stockbroker misconduct and investment fraud cases. This firm has represented investors against most major Wall Street brokerage firms in claims involving stocks, options, auction rate securities, hedge funds, mutual funds, and bonds.

Blum & Silver’s and Sallah & Cox, LLC’s attorneys speak English and Spanish, and they are licensed to practice law in Florida, Colorado, New York and New Jersey.