UBS marketed and sold Lehman “structured notes” to ordinary retail investors. It instructed its brokers that the products were suitable for conservative investors who did not want to put their principal at risk. Investors who purchased these structured notes made a loan to Lehman Brothers and received a promissory note that promised that the value of notes would increase according to some formula if an underlying basket of securities increased, but the investor’s principal would never go down, even if the underlying securities tanked, because the notes came with a guaranty of “100% principal protection.” “If you lent me $100 and I drew up a legal documents that said in big, fat letters that you loan to me came with “100% principal protection,” as long as you stuck with our deal for 15 years, would you feel pretty good about getting your money back in 2024?” asks Susan Antilla of Bloomberg, in her June 10, 2009 article entitled “UBS Redefines Meaning of 100% Loss Protected.”
Unfortunately for these risk-averse investors who relied on the promise of “100% principal protection,” what they were sold was just the opposite ? a 100% unsecured claim on Lehman’s assets that did not protect a dime of principal when Lehman went bankrupt.
Last week, New Hampshire regulators ordered UBS to cease and desist from selling structured products and charged it with engaging in sales and supervisory violations. I addition, investors have filed arbitration claims against UBS to recover their losses. The claims allege, among other things, that UBS did not provide any analysis of Lehman’s creditworthiness or the relevance of its creditworthiness, and did not disclose that the notes were merely unsecured claims on Lehman’s assets. Whether or not Lehman’s demise was predictable is not the point, as the article pointed out; UBS’s representations of “100% principal protection” were false and misleading. “It all seemed designed to deceive,” according to one claimant.
In its answer to one arbitration complaint read by Ms. Antilla, UBS reportedly contends it provided a “clear” description of the risks by stating in the prospectus: “Lehman Brothers Holdings Inc. [are] notes linked to a global index basket” and “the notes are not deposit liabilities of Lehman Brothers Holdings Inc. and are not FDIC insured.” Ms. Antilla’s reaction to that is: Does Mr. Average Investor focus on the nuances of “notes linked to a global index basket” as having some ominous implications when the rest of the document is screaming ‘100 percent’ protection? (Four times on the first page, but who’s counting?)”
Securities firms sold approximately $50 billion of structured products in 2005, $70 billion in 2006, and $120 billion in 2007, almost 50% of the sales being to individual investors. Some Lehman structured products are now being purchased for less than 10 cents on the dollar, according to SecondMarket, Inc., which specializes in purchasing illiquid assets.
Many investors are retirees or on the verge of retirement, or were defensive on the market, and were attracted by promises of higher yields plus principal protection, according to the article. J. Boyd Page, senior partner at Page Perry in Atlanta, observed “This is one of the more outrageous situations we have seen recently. Questions regarding Lehman’s financial viability have been known for months. How anyone could sell Lehman securities as ‘safe money’ is simply appalling.”
Investors who were sold structured products issued by Lehman Brothers, Freddie Mac or Fannie Mae by UBS or other brokerage firms based on representations that they were conservative investments have compelling claims to recoup their losses.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing individual and institutional investors regarding their investments in Lehman notes and similar structured products. For further information, please contact us.