Structured Notes Issued by Lehman, Freddie and Fannie Leave Conservative Investors Burned


Many investors who purchased supposedly “principal protected” structured notes and “return optimization securities” issued by Lehman Brothers have compelling legal claims. While these investors are unsure whether they will recover any of their principal in the Lehman bankruptcy according to Eleanor Laise of the Wall Street Journal in a November 11, 2008 article entitled “Another ‘Safe’ Bet Leaves Many Burned”, many such investors have claims against the brokerage firms that sold these investments.

UBS and other brokerage firms sold Lehman structured products as low-risk investments that were suitable for the “safe money” part of retirement accounts, investors have reported. What investors actually got were unsecured obligations of the issuer, Lehman Brothers. When Lehman went belly up, structured product investors were put in line with other unsecured creditors of Lehman, waiting to see how much of their investment, if any, they can recover.

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.”

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. Over $67 billion of structured products were sold to investors during 2007 through early November 2008.

Page Perry has investigated the sale of Lehman structured products by UBS, and has reason to believe that UBS undertook to conceal the credit risk of such structured products from its clients. Page Perry has further learned that:

  • UBS marketed and sold Lehman Brothers’ “100% Principal Protected Notes” and “Return Optimization Securities” as low-risk investments that would provide investors with the safety associated with “capital preservation.”
  • These securities, many of which promised 100% Principal Protection, were in fact nothing more than the unsecured, subordinated debt of Lehman Brothers Holdings, a struggling, unregulated financial services company.
  • The prospectus and other material created by UBS’s “Structured Products Unit” to sell these products hid a key risk ? that the investments were in reality just investments in Lehman Brothers Holdings.
  • Representations that these investments were backed by zero coupon bonds, options or other sophisticated financial hedging techniques were false.
  • UBS underwrote over $1 billion in Lehman Brothers Holdings’ “structured products,” earning tens of millions in underwriting fees in the process.
  • UBS promised its “Financial Advisors” extra economic incentives to sell these securities to UBS’ customers.
  • UBS continued to market and sell these securities as late as August 2008, without once changing its risk disclosures or recommendations.

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.