Securities Lawyers Blog
On August 8, 2013, UBS agreed to pay $120,000,000 to settle claims related to the Lehman Principal Protected Note cases. According to Reuters, this is UBS’ second settlement in less than three weeks.
According to counsel, the $120,00,000 settlement represents a recovery of 13.4% of the total face value of the structured notes. The parties have stipulated to certify the case for the purpose of settlement. If the class action is approved it will resolve over $898 million in claims against UBS for the Lehman Securities sold by UBS from March 2007 through September 15, 2008 when Lehman filed for bankruptcy in the Southern District of New York.
The question for investors is whether they should take the settlement after approval by the court or reject the settlement and bring a claim individually against UBS. In an individual arbitration, the chances of getting more than a 13.4% recovery is fairly substantial. Many of the UBS Lehman Principal Protected Note cases that went to arbitration since 2009 have resulted in large awards for investors and many have settled before hearing.
Generally speaking, there are two claims that are made against UBS for selling the Lehman Principal Protected Notes. First, that the notes were not suitable for the particular investor. Second, investors are alleging that UBS made material misrepresentations about the safety of the notes. If the notes were truly principal protected how could you lose money? Beginning in late 2006, UBS offered its clients the Lehman Brother Holdings, Inc. (Lehman) 100% Principal Protection Notes, these notes are colloquially referred to as the Lehman 100% PPNs.
FINRA fined UBS for its conduct. According to FINRA:
1) UBS’s financial advisers made material misstatements and omitted facts which misled investors of the Lehman notes especially with regard to the 100% principal protection. The misstatements involved the safety and protection of the initial capital investment in the notes.
2) UBS failed to provide sufficient guidance and training to its Financial Advisers regarding the issuer credit risk, credit default swap spreads, and Lehman’s financial strength during the period leading up to the financial crises. More specifically, UBS failed to train its financial advisers to properly track Lehman’s financial viability. This failure led to the continued sale of Lehman notes even during its losses of $2.8 billion in the second quarter of 2007.
3) UBS failed to create an adequate supervisory system for the sale of the Lehman 100% Principal Protected Notes.
4) Finally, UBS failed to conduct proper suitability analysis for its investors regarding the Lehman notes.
UBS was fined and censured in the amount of $100,000. We believe FINRA’s settlement with UBS was far too small given the allegations against UBS. Moreover a 13.4% return from the class is also unfair to investors.
The attorneys at Gana Weinstein LLP have been investigated the Lehman Principal Protected Note cases for over 3 and a half years. During the 2007 to 2008 period. According to FINRA, UBS sold approximately $16.23 million worth of these notes to 764 unique customers with a conservative or moderate profile with less than $1 million in net worth. These statistics are staggering given the risk associated with these products. If you invested in the Lehman Principal Protect Notes and want to learn more about the products before determining whether you want to accept the class settlement, contact us.