Lehman Notes Lawsuit Filed Against UBS Over Deceptive Sales
A financial fraud lawsuit has been filed against UBS by an Indiana couple who claim the brokerage firm sold them high risk Lehman structured notes while claiming they were safe and protected.
The Lehman Brothers notes lawsuit was filed earlier this month before the Financial Industry Regulatory Authority (FINRA), and is the latest in a string of claims against UBS over problems with the structured notes. In addition to selling the couple the Lehman notes, the lawsuit claims that UBS also sold them its own structured notes, which the investors allege was a violation in spirit of an industry rule that disallows a broker to borrow from its customers.
The UBS lawsuit seeks to recover the entire investment by the couple, which has not been disclosed, as well as attorney’s fees, costs, and punitive damages in an amount of triple what the couple lost.
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Learn MoreLehman Brothers structured notes were a hybrid financial instrument, constructed from a combination of stocks, bonds, currencies, commodities and derivatives, which were promoted by some brokers as low-risk investments, even as Lehman Brothers faced substantial financial troubles. Although investors were told that the notes carried a guaranteed principal protection, that guarantee became worthless when Lehman filed for bankruptcy protection on September 15, 2008.
FINRA is a non-governmental regulatory body that oversees more than 5,000 brokerage firms throughout the United States. Investors are 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.
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. However, according to financial fraud lawyers investigating Lehman Brothers claims on behalf of investors, most individuals are in a better position to recover their losses through a FINRA arbitration claim.
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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1 Comments
MichaelAugust 26, 2010 at 11:12 pm
What UBS did in the US, Credit Suisse practiced in Switzerland. It is estimated that Credit Suisse sold principal-protected Lehman notes worth about 700 million Swiss francs in Switzerland alone. The clients were mostly small investors with little or no experience in capital markets. Just as UBS, Credit Suisse failed to inform the customers about the true nature of these products. Just look at a [Show More]What UBS did in the US, Credit Suisse practiced in Switzerland. It is estimated that Credit Suisse sold principal-protected Lehman notes worth about 700 million Swiss francs in Switzerland alone. The clients were mostly small investors with little or no experience in capital markets. Just as UBS, Credit Suisse failed to inform the customers about the true nature of these products. Just look at a factsheet of a Lehman note sold be Credit Suisse. In the section entitled “risks” you will find neither “Lehman” nor “creditworthiness of the issuer” nor anything similar. Instead - throughout the entiire document - you will find five times the promise “principal protected” – but not a single time in conjunction with Lehman, at least not explicitly. What in my view proves the accusation of deception is the fact that in a sales brochure issued by Credit Suisse, these opportunity notes carry the risk label “low” (see brochure entitled “Anlegen und Vorsorgen”), whereas in the disclaimer of such a note, there is talk of “high” risks. It is obvious that one was text written by marketing people and the other by legal staff and that Credit Suisse failed to reconcile the two. The version the relationship managers stuck to is of course the first one, as you can see from an e-mail sent by my relationship manager. He recommends the Lehman note as an alternative to a fixed deposit and claims that it is FULLY principal-protected (capital letters by Credit Suisse). No mention of Lehman, issuer or issuer risk. In the mean-time, Credit Suisse was forced to buy back about 150 Mio. Swiss francs worth of these notes – not by our financial market supervisory authority, which is totally useless, but by public pressure. This is of course barely more than 20% of what Credit Suisse had sold. At the end of February 2010, Credit Suisse was still advertising structured products on its website with the slogan “Protect your portfolio against unexpected risks with structured derivatives.” The Opportunity Note that was then presented featured repeated emphasis on one-hundred-percent capital protection without a single mention of issuer risk. The Opportunity Note was then awarded a lovely “low” risk value. However, one look at the fine-print disclaimer of such an Opportunity Note would immediately reveal the phrase “These investment products are complex structured derivatives and involve a high degree of risk.” Depending on whether the print is large or small, the risk ranges from low to high; sometimes the Opportunity Note protects against unexpected risks, sometimes it involves a high degree of risk in itself. Even the brochure “Special Risks in Securities Trading” by the Swiss Bankers Association – a brochure which is sent to the customers when they open up a depot, i.e. years before they may actually buy a principal-protected product or, depending on the circumstances, also afterwards – even this brochure fails to explain the relationship between issuer risk and principal protection. As a matter of fact, this brochure even cements what principal protection means to the layman anyway: “What is the maximum possible loss? The maximum possible loss for the buyer of a structured product with capital protection is the difference between the purchase price and the amount of the capital protection.” (Special Risks in Securities Trading, Swiss Bankers Association, Edition 2001, in use until 2008, p. 14) I hope that justice will one day prevail in both the US and Switzerland.