UBS Broker Arbitration Claim Over Lehman Notes Results in $529K Award

A FINRA arbitration panel has awarded $529,688 to a retired couple who pursued an investor claim against their UBS broker over losses associated with Lehman Brothers structured notes, which were sold to the couple even as the investment bank that backed the notes began to collapse in 2008.

The ruling was handed down on November 3 by a panel of arbitrators through the Financial Industry Regulatory Authority (FINRA), which is a non-governmental regulatory body that oversees more than 5,000 brokerage firms throughout the United States. According to the award, UBS must buy back principal protected notes from Lehman Brothers.

Lehman Brothers notes were a hybrid financial instrument, constructed from a combination of stocks, bonds, currencies, commodities and derivatives, which were promoted by many brokers as low-risk investments, even as Lehman Brothers faced substantial financial troubles.

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The stock broker arbitration claim was filed by Steven and Ellen Edelson, who were sold Lehman notes by their UBS broker from 2006 through August 2008, even though the investment back collapsed the following month. Some of the securities were described as “100% Principal Protection”, but the guarantee was worthless once Lehman Brothers failed.

In their Lehman notes lawsuit, the Edelsons alleged that UBS hid the risks associated with the structured notes. A number of similar claims have been filed against UBS by other investors, and UBS has lost six out of seven arbitration claims over Lehman notes so far, according to a report by Reuters.

UBS officials have argued that the fall of Lehman Brothers was unprecedented and an unusual circumstance that they could not have prepared for, and claim that they followed all regulatory laws in selling and promoting the notes.

A UBS class action lawsuit over Lehman structured notes was filed in 2008 in the U.S. District Court for the Southern District of New York, on behalf of all investors who were sold the investment by the brokerage firm. The complaint alleges that UBS brokers made false and misleading statements about Lehman Brothers Principal Protection Notes that omitted material facts about the risk associated with investing.

Investors are also able to resolve disputes against brokerage firms through FINRA for claims involving breach of fiduciary duty, negligence, misrepresentation, breach of contract, unauthorized trading and other claims that investments were improperly handled. Many financial fraud lawyers investigating Lehman Brothers claims on behalf of investors indicate that most individuals are in a better position to recover their losses through FINRA arbitration.

Observers say that more UBS Lehman notes lawsuits could be coming from states and the Securities Exchange Commission could file criminal charges as financial law enforcement investigators look deeper into the brokerage firm’s practices in promoting and selling the notes.


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