Articles Posted in Structured 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.

UBS was sued by the New Hampshire Bureau of Securities Regulation last week for selling unsuitable Lehman Brothers structured notes to retail investors as a conservative investment.

These structured notes were debt obligations that also contains an embedded derivative component with characteristics that adjust the security’s risk/return profile.

According to Bloomberg, Jeff Spill, deputy director of securities regulation for enforcement, said “The safety of these products was exaggerated” and “UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions.”

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.