Investors Continue to Recover from UBS over Lehman Notes in FINRA Arbitration

This week a Financial Industry Regulatory Authority (FINRA) arbitration panel ruled that UBS must buy back a retired couple’s structured notes backed by Lehman Brothers for the original cost of the notes – $529,688. The notes plunged in value when the investment bank collapsed in 2008. According to a recent Reuters article, UBS has been ordered to pay investors some or all of their investment in six of seven FINRA arbitration cases involving Lehman backed structured products. Some of the products were called “100% Principal Protection Notes” and “Return Optimization Securities with Partial Protection.” These notes are now virtually worthless. UBS continued to sell these notes well into 2008. Lehman went bankrupt in September 2008.

These products were supposed to perform like a basket of securities or an index such as the S&P 500. Unlike a stock index or currency basket, however, which could be subject to volatility and big swings, the returns on these investments would be capped, and in exchange for the cap, the investor was supposed to get built-in downside protection.

Investors claim 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. Investors were not told that if Lehman Brothers failed or went bankrupt, their entire investment in the notes would be worthless. This was because the investors in these structured notes did not, in fact, invest in or own the underlying basket of indices linked to the notes. Rather, the investment in the notes, in essence, represented an unsecured loan to Lehman Brothers. Indeed, there was no assurance about what Lehman Brothers would do with the proceeds of investors’ unsecured loans to Lehman Brothers. UBS concealed it concerns about Lehman’s creditworthiness.

UBS sold to its clients about $1 billion worth of Lehman Principal Protected Notes. Unless these investors pursue other avenues of recovery (i.e. arbitration against the broker-dealer that recommended these products to them), they are left to the vulnerable position of being an unsecured in Lehman’s complicated and massive bankruptcy. The Lehman bankruptcy has already spent $1 billion in fees to professionals in the bankruptcy, while the unsecured Lehman investors after over two years have not received a dime from the bankruptcy.

The securities law firm 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.