In late 2007 and early 2008, UBS packaged and underwrote nearly 2 billion dollars in Lehman Brother backe Principal Protected Notes (PPNs), Partially Principal Protected Notes (PPPNs) and Return Optimization Notes (RONs).
Although the products were allegedly presented to UBS retail clients as conservative, income producing investments suitable for almost any client, in reality, the clients were buying senior unsecured Lehman debt. Worse, the debt was sold at a time when Lehman Brothers was in severe financial difficulty and finding it hard to obtain conventional financing from Wall Street at a reasonable cost.
Thousands of investors were sold these supposedly safe notes only to find them to be nearly worthless after Lehman declared bankruptcy on September 15, 2008. Hundreds of FINRA arbitration cases have been filed on behalf of UBS customers hoping to recoup their losses and these cases are just beginning to be heard by arbitration panels. An excerpt of the Wall Street Journal article appears below and documents one of the first such cases being brought and the award obtained by the investor who filed it.
In what will likely be a closely studied ruling, a small investor was awarded $200,000 after an arbitration panel decided her UBS AG broker inappropriately sold her risky Lehman Brothers Holdings Inc. principal-protected notes.
The case is one of the first involving the Lehman notes to be heard by a Financial Industry Regulation Authority arbitration panel. While the arbitration ruling won’t set a precedent, it could indicate how rulings on similar cases will play out.
As in most arbitration awards, the three-person arbitration panel didn’t give reasons for its findings. Other panels don’t have to follow precedent, so they could rule in different ways on nearly identical cases. Still, the case will likely be cited by other plaintiff lawyers.
The case, submitted for arbitration a year ago, was brought against UBS Financial Services, a unit of UBS, which also is being investigated by numerous regulators for alleged issues around its selling of these notes. The client was seeking $300,000 in compensatory damages because the broker recommended structured products. The attorney for the Claimant argued that the notes were “speculative derivative securities” and were “unsuitable” for unsophisticated investors, according to the Finra claim statement.
The broker bought two notes for his client: a $225,000 guaranteed principal protection note and a $75,000 return optimization note. The panel ruled the client should be compensated $150,000 plus interest and attorney fees on the principal protected note; there was no compensation for the $75,000 note.
UBS said it “is disappointed the arbitration panel in this case awarded the claimant any damages, even if it was only half the compensatory losses she was seeking. UBS maintains that any client losses were the direct result of the unexpected and unprecedented failure of Lehman Brothers, which affected all Lehman bondholders.”
The attorneys at Colling Gilbert Wright & Carter are currently representing clients in arbitration claims against UBS for losses stemming from the sale of Lehman Brothers Structure Notes. If you have experienced losses from the purchase of a Lehman backed structured product, please contact our office for a free case evaluation. Thank you.