UBS Faces a Deluge of Claims for Selling Risky Lehman Structured Notes as Safe Investments
UBS AG is facing a growing number of arbitration claims from U.S. investors who were sold supposedly “100 per cent principal protected notes” issued by Lehman Brothers Holdings, Inc., according to a November 3, 2008 article in Bloomberg by Bradley Keoun and David Scheer. About $8 billion Lehman structured notes were outstanding in September of this year, including $2.8 billion sold this year. UBS sold about $1 billion of Lehman structured notes, according to the article. The notes are unsecured obligations of Lehman, and are now virtually worthless in the wake of the Lehman bankruptcy.
UBS misrepresented the Lehman notes as low-risk investments that were suitable for the “safe money” part of retirement accounts, investors have reported. However, many investors have received statements showing their supposedly safe investments have been wiped out. State regulators have received so many complaints about the Lehman notes that they are considering a task force to investigate the sales, according to the article. J. Boyd Page, senior partner at Page Perry, LLC 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.”
Structured notes, like the Lehman notes sold by UBS, are hybrid products constructed by Wall Street banks that can consist of combinations of bonds, stocks, commodities, currencies and derivatives. When the credit crisis made bonds more expensive to issue and sell to institutions, Wall Street banks, which rely on borrowed money to finance their operations, began selling more structured notes to individual retail investors, according to the article. Sale of such structured notes quadrupled in the U.S. during the past four years, according to a London research firm referenced in the article.
The law imposes a duty upon securities brokers only to recommend securities that the broker reasonably believes are suitable for the customer. The broker's belief must be based upon a reasonable inquiry concerning the customer's investment objectives, financial situation and needs, tax status, other security holdings, and any other relevant information known by the broker. If an unsuitable recommendation by a broker results in financial loss, the customer has a right to recover that loss from the individual broker and his or her brokerage firm. The Lehman notes were clearly unsuitable for anyone seeking a low-risk investment.
Likewise, the law imposes a duty on broker not to misrepresent or fail to disclose material facts about an investment. A material fact is one that a reasonable person would consider important in deciding whether or not to invest. The investors with whom Page Perry has spoken were not advised of the true risks associated with an investment in Lehman’s notes. Investors have a right to recover losses resulting from such misrepresentations and omissions.
Page Perry has represented investors in unsuitability and misrepresentation/omission cases against brokerage firms for many years. 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 institutional and individual investors with investment problems. For further information, please contact us.
