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UBS Lehman Principal Protected Notes FAQ

Who is the complaint actually against? UBS or Lehman Brothers?

The complaint is against UBS, which sold Lehman Brothers Principal Protected Notes. In 2008, Lehman Brothers filed bankruptcy, making the Lehman Brothers structured notes virtually worthless. It was UBS, however, that sold the notes and marketed them and it is against UBS that the claims are being filed.

What is the complaint against UBS?

There are a few complaints against UBS related to the Lehman Brothers Principal Protected Notes. One allegation is that investors were not told during sales pitches that Lehman Brothers was the only guarantor of the Principal Protected notes. Furthermore, investors claim they were not aware the principal protected notes were even a Lehman Brothers product, nor were they told about the risks associated with the Principal Protected notes.

Investors allege that it was suggested that they would at least receive their principal back if they left the investment through to maturity. They further allege that the investment was unsuitable for people with a "conservative" investment profile, although the investments were allegedly marketed to such investors.

UBS reportedly sold approximately $1 billion of the UBS Lehman Principal Protected Notes.

What happened with the Lehman Brothers Principal Protected Notes?

In September 2008, Lehman Brothers declared bankruptcy, making the notes virtually worthless, despite the name "Principal Protected".

Have investors filed lawsuits or arbitrations regarding UBS Lehman Brothers Principal Protected Notes?

Yes. Investors have filed FINRA (Financial Industry Regulatory Authority) arbitrations against UBS. Some have been decided (see following question for FINRA rulings). Meanwhile, lawsuits have been filed by New Hampshire and Missouri against UBS for allegedly using unfair sales practices and recommending unsuitable investments.

Have any arbitration decisions been made regarding UBS Lehman Principal Protected Notes?

Yes. Most recently a FINRA arbitration panel found in favor of UBS Lehman Principal Protected Notes investors and awarded them $8.25 million while hitting UBS with an additional $2.5 million fine. The FINRA panel found that UBS misled some investors as to the nature of the Principal Protected Notes. The award affects investors who purchased the Lehman structured notes between March and June 2008.

In addition to misleading investors about the nature of the notes, FINRA found that the Lehman Brothers structured notes were sold to investors even though they were unsuitable given the investors' risk profiles.

In earlier decisions, the FINRA panel awarded $2.2 million to an investor, $530,000 to a couple who invested in the structured notes and $200,000 to a different investor.

How were the Lehman Brothers Principal Protected Notes marketed?

According to a lawsuit filed by New Hampshire, "UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions. The safety of these products was exaggerated," (09/03/09; New Hampshire Bureau of Securities Regulation.

Furthermore, FINRA, in issuing an $11 million judgment against UBS, found that UBS, "created and used advertising materials that had the effect of misleading some customers about specific characteristics of PPNs [Principal Protected Notes]," (04/11/11). Those materials, according to FINRA, suggested that a return on the principal would be guaranteed if customers held the principal protected note to maturity but did not address the effect that credit risk could have on the principal.

What does UBS say about the Principal Protected Notes?

UBS has defended itself and its practices saying that losses in the Lehman Brothers Principal Protected Notes "were the direct result of the unexpected and unprecedented failure of Lehman Brothers." The company has further argued that it followed regulatory requirements in the sale of the notes.
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Last updated on Apr-19-11
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