Lehman Principal Protected Notes

Klayman & Toskes is presently handling cases against UBS on behalf of  investors who sustained losses in Lehman Brothers 100% Principal Protected Notes (“Lehman Principal Protected Notes”). Also referred to as guaranteed linked notes, these securities were “structured products” that combined fixed income investments with derivatives. What resulted was a product that supposedly provided the protection of fixed income, with the upside of the stock market.

Lehman Principal Protected Notes were marketed by several brokerage firms, including Lehman Brothers, Citigroup, UBS, Merrill Lynch and Wachovia, as conservative investments. Investors looking for income with capital preservation were advised that Lehman Principal Protected Notes would provide preservation of capital, a modest yield, and a slight gain in principal. In a brochure issued by Lehman Brothers, it stated that their “structured notes”, which includes Lehman Principal Protected Notes, had “100 percent principal protection” and “uncapped appreciation potential” based upon the gains in the S&P 500 Index. In reality, however, investors of Lehman Principal Protected Notes were subject to a significant amount of risk.

In January 2013, a securities class action lawsuit filed against UBS Financial Services (NYSE: UBS), Case No. 09-md-02017, obtained certification for a class of investors who purchased certain Lehman Principal Protection Notes from UBS. UBS customers who are eligible to participate in the class action should consider whether they should participate in the class action or file an individual securities arbitration claim in the arbitration forum established by the Financial Industry Regulatory Authority (“FINRA”).

Klayman & Toskes reminds eligible class members of the benefits of filing an individual securities arbitration claim against UBS, as opposed to participating in the class action lawsuit. By participating in the class action lawsuit, investors will most likely recover a nominal amount. As a result, it may be more beneficial to file a securities arbitration claim to recover losses sustained in Lehman Notes. In 2003, K&T 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.

On April 11, 2011, FINRA announced that it fined UBS Financial Services, Inc. $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 announcement 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.

 

a securities class action lawsuit filed against UBS Financial Services (NYSE: UBS), Case No. 09-md-02017 has obtained certification for a class of investors who purchased certain Lehman Principal Protection Notes from UBS. UBS customers who are eligible to participate in the class action should consider whether they should participate in the class action or file an individual securities arbitration claim in the arbitration forum established by the Financial Industry Regulatory Authority (“FINRA”).

K&T reminds eligible class members of the benefits of filing an individual securities arbitration claim against UBS, as opposed to participating in the class action lawsuit. By participating in the class action lawsuit, investors will most likely recover a nominal amount. As a result, it may be more beneficial to file a securities arbitration claim to recover losses sustained in Lehman Notes. In 2003, K&T 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, please visit our web-site: http://www.nasd-law.com/documents/classvr.pdf

 

The class action alleges that UBS violated federal securities laws by selling structured products to its customers, despite the fact that it was aware that Lehman’s ability to meet these obligations was called into question because of its deteriorating financial condition. Further, it is alleged that UBS’ offering materials for the so called “principal protection notes” was false and misleading in that it failed to adequately disclose that “principal protection” was contingent on the solvency of Lehman.

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