The Securities Arbitration Law Firm of Klayman & Toskes announced today that The Financial Industry Regulatory Authority (“FINRA”) has fined UBS Financial Services, Inc. (NYSE: UBS) $2.5 million and ordered the broker-dealer to pay $8.25 million in restitution, as a result of “omissions and statements made that effectively misled some investors regarding the ‘principal protection’ feature of 100% Principal-Protection Notes (PPNs) Lehman Brothers Holdings Inc. issued prior to its September 2008 bankruptcy filing.” FINRA’s news release can be viewed by clicking here. Almost $1 billion of Lehman Notes were sold by UBS, and the $10.75 million represents about 1% of the value of those Notes. In light of this result, Klayman & Toskes will continue to fight for investors in securities arbitration to recover losses sustained in the Lehman Notes.
According to FINRA: “From March to June 2008 as the credit crisis worsened, UBS advertised and some UBS financial advisors described the structured notes as principal-protected investments and failed to emphasize they were unsecured obligations of Lehman Brothers, which eventually filed for bankruptcy in September 2008. FINRA found that UBS:
- failed to emphasize adequately to some investors that the principal protection feature of the Lehman-issued PPNs was subject to issuer credit risk;
- did not properly advise UBS financial advisors of the potential effect of the widening of credit default swap spreads on Lehman’s financial strength, or provide them with proper guidance on the use of that information with clients;
- failed to establish an adequate supervisory system for the sale of the Lehman-issued PPNs, and failed to provide sufficient training and written supervisory policies and procedures;
- did not adequately analyze the suitability of sales of the Lehman-issued PPNs to certain UBS customers;
- created and used advertising materials that had the effect of misleading some customers about specific characteristics of PPNs”
Further, FINRA said, “This matter underscores a firm’s need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors. In cases, UBS’ financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer’s credit risk so investors would understand the magnitude of the potential losses.”
Presently, Klayman & Toskes is prosecuting securities arbitration claims against UBS with FINRA’s Office of Dispute Resolution, on behalf of investors who sustained losses in Lehman Notes. Many investors of the Lehman Notes have received paperwork from the Lehman Brothers bankruptcy proceeding, and are hoping to recover their losses in the Notes through that process instead of filing an individual securities arbitration claim against UBS. However, it is unclear how long that process will take, or whether investors will recover more than a nominal amount. Accordingly, investors should avail themselves of all remedies in attempting to recover their losses, including filing a securities arbitration claim against UBS. Further, investors should determine if they have to contend with any statute of limitations issues.
Additionally, while a class action lawsuit has been filed relating to the Lehman Notes, Klayman & Toskes reminds investors of the benefits of filing an individual arbitration claim, as opposed to participating in a class action lawsuit. According to Lawrence L. Klayman of Klayman & Toskes, “We have consistently said that investors who lost more than $100,000 in their brokerage account should pursue an individual arbitration claim rather than participate in a class action. The Awards coming out in these Lehman Note cases confirm our position.”
To date, investors who filed claims against UBS in the FINRA arbitration forum have won seven of eight cases. The sole case which did not prevail was filed by a pro se investor. Collectively, the eight cases sought damages of $3,642,688, with Panels handing out 95% of that amount, or $3,461,438. Five of the seven successful cases won 100% of the damages sought. The other two cases won an average of 67% of the damages. The high win rate in these cases stands in stark contrast with the results obtained by investors from 2006 to 2010. During this time frame, investors won about 43% of the time.
By participating in a class action lawsuit, an investor may only recover a nominal amount. However, if one has experienced significant investment losses, it may be more beneficial for them to file an individual securities arbitration claim. In 2003, Klayman & Toskes conducted a detailed study of securities arbitration versus class action. The study concluded that investors who file a securities arbitration claim traditionally obtain an overall higher rate of recovery as opposed to participating in a class action lawsuit. To view the full results of the comparison, click here.
Investors who have sustained losses in the Lehman Notes can contact Klayman & Toskes to explore their legal rights and options.