Improper Sales of ‘100% Principal Protected Notes’ Wallop UBS Again


In one of the largest dollar awards to date in a Lehman note case against UBS Financial Services Inc., a Financial Industry Regulatory Authority (FINRA) arbitration panel “walloped” UBS, ordering it to pay former Philadelphia 76ers President Pat Croce more than $2 million for losses in so-called “100% Principal Protected” Lehman notes that were sold to him weeks before Lehman’s September 15, 2008 bankruptcy filing. See Samuel Howard’s Law360 article entitled “UBS Told To Pay 76ers Prez $2M Over Lehman Notes.”

The award is structured as $2 million less the residual value of the notes ($480,000) plus 6% interest going back to September 2008.

Croce and his wife alleged that UBS committed securities fraud and breach of fiduciary duty in recommending the structured product to him despite UBS senior management’s concern about Lehman’s financial condition, which was not disclosed to investors. The FINRA arbitration panel obviously agreed after considering the pleadings, the testimony and evidence presented at the hearing. The award reflects the fact that UBS misled investors about the risks of the Lehman structured products in the leadup to Lehman’s bankruptcy.

UBS has lost or settled every Lehman note case it has faced.

In December, a FINRA arbitration panel also ordered UBS to pay more than $2.2 million (100% of the compensatory damages requested) to Thomas F. Motamed, the Chairman and CEO of CNA Financial Corp., for personal investment losses related to the Lehman-structured products, including PPNs.

These awards “show that even a seemingly sophisticated investor can win back his or her money when defrauded by a brokerage firm,” said investor attorney J. Boyd Page, the senior partner of Page Perry based in Atlanta.
?”Every time UBS loses one of these cases, the phones light up again,” said Seth E. Lipner, of Deutsch & Lipner in New York, who is co-counsel with Page Perry in Atlanta on Lehman structured note cases. In earlier cases (Edelson v. UBS, decided November 2010; Severi vs. UBS, decided in December 2009; and Marcus et al. v. UBS, decided April 2010), arbitration panels ordered UBS to buy back the Lehman principal protected structured products from investors at their original cost.

Mr. Page added: “This collection of arbitrator awards confirms just how egregious UBS’s activity was. Investors in these toxic notes are urged to take action if they haven’t already done so. Some investors were sold these Lehman notes in 2007 and 2008 are beginning to reach, or may have already reached, the four year anniversary of the purchase date. Further delay could result in time bar issues.”

Arbitration panels are obviously not buying UBS’s main defense that all three rating agencies had an investment-grade rating on Lehman up to the bankruptcy. “UBS knew that Lehman was in trouble as far back as 2007, but they continued to sell Lehman structured products anyway, ignoring the ever-growing risk,” Mr. Page observed, adding: “Not only weren’t they candid with the public, they weren’t candid even with their own brokers.”

“These are highly complex products; they are too complex for ordinary investors to evaluate. We have obviously been successful in proving that,” Mr. Lipner noted.

Page Perry, a law firm based in Atlanta, Georgia, is co-counsel with Mr. Lipner and his Garden City, New York law firm, Deutsch & Lipner, in representing investors in Lehman structured note and reverse convertibles cases.