The Financial Industry Regulatory Authority (FINRA) announced that it has fined UBS Financial Services, Inc., $2.5 million, and required UBS to pay $8.25 million in restitution to certain investors for its misconduct regarding Lehman Brothers 100% Principal-Protection Notes (PPNs) sold by UBS. UBS’s misconduct includes misleading investors about: (1) the principal protection feature, (2) the risk that they could lose their entire investment, (3) the worsening credit risk of Lehman, (4) inadequate supervisory procedures, and (5) failure to educate its sales force about the risks and how the PPNs work.
From March to June 2008 as the credit crisis and Lehman’s financial situation worsened, UBS advertised and described the PPNs as 100% principal-protected investments and failed to explain that they were unsecured obligations of Lehman Brothers, which filed for bankruptcy in September 2008. Despite the representation of 100% principal protection, investors lost virtually their entire investment.
UBS entered into a Letter of Acceptance, Waiver and Consent pursuant to which it accepted and consented to payment of the fine and restitution, and to the entry of findings by FINRA. Among other things, FINRA specifically found that UBS created advertising and marketing materials for the PPNs that were misleading, rather than fair and balanced.
In addition to misrepresenting and omitting to disclose material facts, FINRA further found that UBS did not adequately analyze the unsuitability of the PPNs, particularly for those customers with moderate to conservative risk tolerances, who were more likely to rely on UBS’ representations about the “100% principal protection” feature of Lehman PPNs because of their risk averse investment objectives.
FINRA also found that some UBS representatives who sold the PPNs did not understand that they were just the unsecured debt of Lehman Brothers and that UBS did not guarantee that debt, among other fundamental facts, and consequently communicated incorrect information to their customers.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, was quoted as saying “In cases, UBS’ financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer’s credit risk so investors would understand the magnitude of the potential losses.”
“UBS knew that Lehman was in trouble as far back as October 2007, but they continued to sell Lehman structured products anyway, ignoring the ever-growing risk,” observed Seth E. Lipner, adding: “Not only weren’t they candid with the public, they weren’t candid even with their own brokers.”
J. Boyd Page, a senior partner of Page Perry, said: “Some investors who were sold these Lehman notes and other equally egregious structured products such as reverse convertibles in 2007 and 2008 and are beginning to reach, or may have already reached, the four year anniversary of the purchase date. We urge any such investor who has not yet filed an arbitration claim not to delay in contacting an attorney with experience in this area.”
Page Perry, a law firm based in Atlanta, Georgia, and Deutsch & Lipner, are co-counsel in representing a number of investors in Lehman structured note cases.
Page Perry has over 125 years collective experience representing institutional and individual investors in securities-related litigation and arbitration all over the country. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 40 occasions.