LehmanÕ structured notes clearly flawed, law firms allege

Three separate arbitration panels over the past 18 months have ordered UBS AG‘s (UBS) Financial Services unit to buy back “principal protected” notes sold to investors at their original cost. In one of the most recent cases, a Financial Industry Regulatory Authority arbitration panel, or FINRA as it is commonly known, ordered UBS to buy back $529,688 of principal protected notes sold to a New York couple. The panel in the Edelson v. UBS Financial Services case also assessed the full costs of the hearing, which lasted more than 20 sessions, against the global financial services giant. “We believe this award, like the others we have won, shows the arbitrators believe UBS misnamed, mismarketed and misrepresented these products,” said Seth E. Lipner with Deutsch & Lipner in Garden City, N.Y., who represented the plaintiffs in the Edelson case. “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,” Lipner said. “Not only weren’t they candid with the public, they weren’t candid even with their own brokers.” UBS sees it differently. “UBS properly sold Lehman structured products to UBS clients, following all regulatory requirements, well-established sales practices and client disclosure guidelines,” UBS spokeswoman Karina Byrne said. “Any client losses were the direct result of the unexpected and unprecedented failure of Lehman Brothers, which affected all Lehman bondholders.” UBS declined to answer questions related to its potential financial exposure to such cases. Lipner represented investors in two other cases involving Lehman principal protected structured products sold by UBS (Severi v. UBS, and Marcus et al. v. UBS) In both those cases, arbitration panels also ordered UBS to buy back the investments, Lipner said. UBS, which reportedly sold $1 billion of Lehman structured products to U.S. investors, is facing other similar arbitration claims. The firm has reportedly not won a single such case where the investor was represented by counsel, Lipner said. Page Perry, a law firm based in Atlanta, and co-counsel with Lipner, said investor interest in the cases remains high. “We continue to receive inquiries from investors who acquired Lehman structured notes as a result of UBS’s misrepresentation of it as a ‘principal protected’ investment,” said J. Boyd Page, a senior partner at Page Perry. Interest and investment in structured products has grown in recent years, but the products can be extremely complex with the risks difficult to understand, according to a September Bloomberg report, which said structured note offerings are up 58% to $31.9 billion through August. The Securities and Exchange Commission’s enforcement division formed a group this year to investigate structured products, including those marketed to individuals. Principal protected notes are sold on the basis that the investment is guaranteed, as long as the investor holds long. Write to Kerry Curry.