Naples, Fla. — UBS engaged in gross misconduct when it marketed more than $900,000 in Lehman notes to a charitable trust as a safe and “principal protected” investment after public warning signs about Lehman Brothers’ financial solvency had surfaced, according to a claim filed today by the Vernon Litigation Group law firm.
The charitable trust, which gives to environmental causes, the arts and youth programs, stands to lose more than $1 million on Lehman notes and other structured products sold to it by UBS.
According to the UBS sales pitch, principal-protected notes would return the entire original principal investment back to the investor even under a worst-case scenario. However, the notes were in fact risky, unsecured loans to Lehman Brothers, according to the claim.
When an issuer goes bankrupt, as Lehman Brothers did, holders of structured notes are left standing at the back of the line with other unsecured creditors and they may recover little, if anything, of their original investment.
Structured products, including principal-protected notes, were initially sold only to institutional investors. More recently, major brokerage firms, including UBS (UBS), Merrill Lynch (MER), Barclays (BCS), and Wachovia (WB), have pushed their sales forces to dump these products on their own retail customers, said securities attorney Chris Vernon.
As early as 2005, industry regulators from the Financial Industry Regulatory Authority (formerly known as the NASD) raised concerns about the way that complex structured products, including structured notes, were being marketed to individual investors. At least one European country has outlawed the recommendation of structured products to retail investors.
In the case of the charitable trust, the UBS investment advisor urged the purchase of Lehman notes in February and March 2008, after significant concerns about Lehman’s creditworthiness surfaced within the investment world that UBS operates, according to the claim.
In fact, UBS sold the trust more than $600,000 in Lehman notes after the collapse of Bear Sterns, and Lehman’s 2008 first-quarter report raised concerns in the financial industry about its balance sheet. As investment professionals, UBS was well aware or should have been well aware, that credit risk was an issue when it sold the Lehman notes, the claim asserts.
The Vernon Litigation Group law firm is helping multiple Lehman structured note investors weigh their legal options, which include filing individual or group arbitration claims with the Financial Industry Regulatory Authority (FINRA).
Through formal claims, the Vernon Litigation Group law firm intends to show that conflicts of interest led UBS to misrepresent and inappropriately recommend Lehman notes and other structured notes to a wide variety of its trusting base of retail clients.
Vernon Litigation Group is a Naples, Florida based law firm that assists investors nationwide in recovering significant losses caused by all manner of financial fraud and negligence in both court and arbitration.
The firm handles a wide variety of business and investment-related matters, including disputes involving various types of securities and investments — e.g., hedge funds, TICs (tenancy in common), bonds, variable prepaid forward contracts, mortgage and debt obligations, pension, and retirement funds.
For more information, contact:
Christopher T. Vernon, Attorney at Law and Susan R. Healy, Attorney at Law