FINRA Fines UBS for Principal Protected Notes

FINRA fined UBS Financial Services, Inc. $2.5 million, and required it to pay $8.25 million in restitution for omissions and misleading statements made regarding the “principal protection” feature of Lehman Brothers100% Principal-Protection Notes (PPNs).

Our firm is presently representing investors of the Lehman PPNs against UBS in arbitrations at FINRA. It’s good to see FINRA stepping up and fining UBS in this matter. It’ll be a battle in the many pending arbitrations against UBS for investors to enter the fine into evidence as an indication of wrongdoing by UBS.

According the FINRA press release, UBS had 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
Here is the link to the release.