Of course, that the investment could lose its value at all was a surprise to many investors. The name of the investment, "Principal Protected," suggested that at the very least the principal invested in the fund would be safe from losses, according to investors. So when investors discovered that Lehman backed the principal and was declaring bankruptcy, many were stunned.
Some are now filing lawsuits and/or arbitration claims against UBS, alleging they were not adequately warned about the risk associated with the Principal Protected Notes, nor were they warned when UBS reportedly had concerns about Lehman's future.
New Hampshire has also filed a complaint against UBS, alleging "dishonest and unethical business practices," including exaggerating the safety of the Principal Protected Notes and failing to adequately supervise employees in the distribution of the notes. The state argues that UBS sold the Principal Protected Notes even after it was clear that Lehman Brothers would fail because of subprime mortgages.
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Investors, however, say they did not know Lehman Brothers was the sole guarantor of the UBS Principal Protected Notes. Furthermore, they say they were told the notes were risk-free.
UBS has already faced arbitration related to the Principal Protected Notes. These include one couple, Christine and Thomas Motamed, who were awarded $2.2 million in their FINRA (Financial Industry Regulatory Authority) filing against UBS. The award was reportedly the seventh win for claimants who filed arbitrations against UBS linked to the Principal Protected Notes. In another FINRA arbitration, a retired couple was awarded $530,000 for their losses related to the Principal Protected Notes.