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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.

Below is a CNBC guest blog by Ross Intelisano on the two year anniversary of Madoff’s arrest.

Madoff Two Years Later – It’ll Never Be the Same by Ross B. Intelisano – Rich & Intelisano, LLP

December 11, 2008 started like a typical year-end work day. Then the phone rang with a hysterical retired widow screaming and crying that she had just lost almost all of her money investing with Bernie Madoff. That might seem strange to many, but we receive calls like this all of the time. Our law firm represents investors who’ve been defrauded by Wall Street. But the phone kept ringing, all day, every day, from December through February. And the numbers were staggering; tens or even hundreds of millions of dollars lost. Generations of wealth were completely wiped out. We knew immediately. This was going to be the largest fraud ever, and by a long shot. And it was. $18 billion. Almost ten times larger than any other Ponzi scheme.

New York Super Lawyers, a publication of The New York Times Magazine, has named Ross B. Intelisano as one of New York’s top Securities Litigation attorneys in their 2010 publication. The list of Super Lawyers recognizes lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement in their respective fields. Super Lawyers’ selection process is a vigorous multi-phase rating process based on peer nominations and evaluations, combined with third-party research. Their selection process has been recognized by bar associations and courts across the country.

Ross Intelisano is the only attorney on the 2010 New York Super Lawyers top Securities Litigation list who primarily represents institutional and individual investors in securities arbitration.

Investors who lost $1 billion in the Goldman Sachs structured ABACAS CDO were handed a strategic road map by the SEC when it filed the civil fraud complaint against Goldman on Friday. The alleged misrepresentation to ACA by Goldman that Paulson was long the equity tranches of ABACUS and the omission to disclose to ABACUS investors in writing and orally that Paulson handpicked securities in ABACUS while it was simultaneously shorting the same securities are the crux of a potential claim by ABACUS’ investors against Goldman. But what path should investors forge to recover their losses? Court or arbitration? The recent RaceTrac v. Bear Stearns arbitration award shows that a large investor can win a private arbitration against a significant brokerage firm related to misrepresentations and omissions of CDO’s regardless of the risk disclosure language contained in the prospectus.

Since the subprime market meltdown, only one multi billion dollar investor has received a legal award or judgment against brokerage firm for misrepresenting and materially omitting to disclose facts related to CDOs. RaceTrac Petroleum, an Atlanta-based chain of more than 525 retail gasoline convenience stores in the southeast U.S., won a $3.4 million award against Bear Stearns in December 2009. The FINRA arbitration panel ruled that Bear Stearns was liable for misrepresentation and material omission, negligence and failure to supervise related to the Bear Stearns High Grade Funds, a CDO packed hedge fund which caused $1.6 billion in losses in 2007.

The issues in the Goldman ABACUS case are very similar to the Bear Stearns High Grade case. Did Goldman misrepresent or omit disclosing a material fact to the ABACUS investors? Instead of filing a lengthy, costly, public civil lawsuit against Bear Stearns, RaceTrac filed an arbitration claim at FINRA in December 2007 seeking $5 million in damages. Federal prosecutors filed criminal charges against the funds’ portfolio managers, Ralph Cioffi and Matthew Tannin. In March 2009, on the eve of the arbitration hearings in Atlanta, the U.S. Attorneys’ Office in New York ran into federal court in Brooklyn to try to stop RaceTrac from going forward with the arbitration until the criminal trials of Cioffi and Tannin were completed. Judge Block shut the government down and allowed RaceTrac to proceed. A jury then acquitted Cioffi and Tannin of all criminal charges November 2009. However, after 16 days of private arbitration hearings, the FINRA arbitration panel ruled that Bear Stearns was liable and awarded damages of almost 70% of RaceTrac’s investment.

The investment world is buzzing about the SEC’s fraud allegations against Goldman Sachs for misrepresenting and omitting to disclose Paulson’s role in choosing RMBS securities for the ABACUS CDO and then shorting the same individual RMBS through CDS transactions with Goldman. According to the SEC, “investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.” It is hard to tell whether direct investors in ABACUS lost $1 billion or whether that includes companies which had CDS risk exposure to it. Either way, what are the money losers going to do about it?

According to the SEC complaint, IKB, the German commercial bank, bought $150 million of Class A-1 and Class A-2 Notes which seem to look like the AAA-rated upper tranches of ABACUS. But there is no other disclosure of who else bought ABACUS from Goldman. I presume that IKB was very cooperative with the SEC and allowed its name to be used in the complaint as opposed to being dubbed “Investor #1”. IKB has likely been negotiating with Goldman behind the scenes. I expect to see a civil complaint filed by IKB against Goldman in federal court in New York shortly. However, they are probably better off arbitrating the dispute for numerous reasons (privacy, low cost, limited dispositive motion practice, etc.).

The SEC complaint also explains how a division of ACA, the monoline insurance company, served as the “Portfolio Selection Agent” for ABACUS, and another division of ACA (ACA Capital) also sold protection on $909 million of the super senior tranche of ABACUS through credit default swaps as well. ABN AMRO, the European bank, then assumed that same exposure through CDS deals with Goldman and ACA. The complaint alleges Goldman defrauded IKB, ACA and ABN AMRO. ABN AMRO was bought by the Royal Bank of Scotland and after ABACUS went to almost zero, RBS paid Goldman $841 million, most of which was then paid by Goldman to Paulson due to Paulson’s short bets on the underlying tranches. Got that?

The SEC charged Goldman Sachs with defrauding investors of ABACUS 2007-AC1, a synthetic CDO created and sold by Goldman in early 2007 when the subprime world was reeling. Investors in ABACUS ultimately lost $1 billion.

The SEC’s civil fraud complaint alleges that Goldman allowed the multi billion dollar hedge fund Paulson & Co. to help select RMBS (residential mortgage backed securities) for the Abacus CDO, knew that Paulson was concurrently shorting specific tranches of the CDO but did not disclose anything about Paulson to investors in the CDO offering documents or marketing materials.

This is a huge development in that it shows SEC has the fortitude to file actions against the biggest firm of all related to its failure to disclose material information to investors. Goldman will likely be the brunt of civil lawsuits or arbitrations related to the ABACUS CDO. The next question is whether the SEC will file claims against Paulson as well.

Securities arbitration cases are being filed at a much greater pace so far in 2009 than they were in 2007 and 2008. FINRA, the Financial Industry Regulatory Authority, which administers most of the securities arbitrations filed in the U.S., released its case filing statistics as of April 2009.

According to FINRA’s website, there were 2,403 securities arbitration cases filed at FINRA so far this year. That’s an 81% increase over the same time period in 2008. This news is not surprising. Since the market decline in October 2008 and the exposure of the Bernie Madoff and Allen Stanford scandals, securities fraud has become a hot topic. Many investors who may not have known they have potential remedies for abuses in the securities, commodities and hedge fund world, have since reached out to securities attorneys to determine whether they have a case.

Based upon our firm’s increased caseload and anecdotal evidence from other practitioners in this niche market, we expect FINRA case filing numbers to continue to grow, possibly to 2001 and 2002 levels. Unfortunately, due to the great media attention given to the Madoff affair, there are many attorneys now promoting themselves as experts in securities fraud. Investors who think they’ve been wronged should make sure they speak to attorneys who specialize in securities arbitration. Luckily, securities arbitration attorneys may handle cases nationally (and internationally) despite not being licensed in every state so there is a strong pool to choose from. PIABA, the Public Investors Arbitration Bar Association, is a great place to find a securities arbitration practitioner. Check out for more information. The FINRA statistics are available at

Lehman Brothers structured notes were sold worldwide by firms including UBS and Citigroup as a conservative investment. They turned out to be very risky and worthless. Investors around the globe are investigating what potential legal claims they may have, against whom and where. These issues need to be analyzed in detail.

According to a recent BusinessWeek article, a Lehman Brothers subsidiary in Amsterdam manufactured $30 billion in structured notes from 2003 through 2008. A structured note can be defined as a debt obligation which also contains an embedded derivative component with characteristics that may adjust to the security’s risk-return profile. The performance of a structured note tracks that of the underlying debt obligation and the derivative embedded within it. Many of these notes are extremely complex and hard to understand by even institutional investors. The BusinessWeek article reports that “Lehman’s Amsterdam notes were bafflingly complex. In all, the unit issued some 4,000 variations, and the documentation for each type often ran to 600 pages.”

International firms including UBS and Citigroup pitched these notes to investors as safe investments. However, they were extremely risky and became worthless when Lehman filed for bankruptcy. Attempting to recover one’s investment through any of the Lehman bankruptcy proceedings may prove difficult. However, investors in the U.S. and worldwide may have potential claims against the entities (such as UBS and Citigroup) which sold the Lehman notes. Our firm and others in the U.S. have already been retained by many investors. Investors outside the U.S. should investigate whether they can bring potential claims against any U.S. based broker-dealer or an affiliate of a U.S. based bank in the U.S. court system or in arbitration. Historically, international investors have been able to commence FINRA arbitrations against U.S. broker-dealers or affiliates of U.S. firms in New York for actions which took place abroad.

The SEC filed the first case alleging insider trading in credit default swaps (CDS) yesterday. It’s likely the first of many. CDS’s are derivatives which are essentially a form of insurance against a bond default. The $38.6 trillion CDS market is rife with problems and was used to wildly speculate on prospects of companies.

The SEC brought the case in the U.S. District Court in the Southern District of New York. The complaint alleges that Jon-Paul Rorech, a 38-year-old salesman for Deutsche Bank AG, passed confidential information about the 2006 buyout of Dutch media company VNU NV to Renato Negrin, a 45-year-old former trader for the hedge fund Millennium Partners. The complaint also alleges that Mr. Rorech told Mr. Negrin about the new bond offering for VNU and when Mr. Negrin asked to handicap the likelihood of the deal, Mr. Rorech said, “You’re listening to my silence, right?” The two men then had a three-minute cell phone call and ten days later after Mr. Negrin had bought €20 million of credit-default swaps on VNU, he had pocketed a cool €950,000, or $1.2 million. Not bad for a weeks work.

However, the interesting aspect of the SEC complaint is not that the alleged fraud took place in the CDS market, it is that there are still allegations of employees of banks providing selective information to hedge funds and other high priority clients prior to disseminating said information to the public. Despite the public outcry over the research analyst scandals in the early 2000’s, banks continue to have two sets of playing rules: one for the big hitters and another for the little guys. Hopefully, the SEC’s new found set of sharp teeth will eventually even the playing field.

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