The law firm of Hartzell & Whiteman, LLP is currently representing clients who purchased Lehman Brothers “Structured Product” notes. These investments were sold by UBS Financial Services, Inc. from December 2006 through August 2008.

On January 18, 2010, a panel of arbitrators appointed by FINRA awarded substantial damages to two Hartzell & Whiteman clients who purchased Lehman Brothers Structured Product Notes on March 26, 2008, less than six months before Lehman Brothers filed for bankruptcy protection.

[Click Here to View Arbitration Award in Chang v. UBS Financial Services, Inc., FINRA Case No. 09-01382]

Structured Products are unsecured notes whose return is based on a “derivatave.” According to a UBS sales brochure, the returns on structured products are linked to the performance of the relevant underlying asset or index. However, purchasers of Structured Products did not own a direct interest in the underlying assets or index. In reality, Structured Products were nothing more than unsecured debt obligations of Lehman Brothers, and thus investors’ ability to receive a return of principal was dependent upon the creditworthiness of Lehman Brothers.

One category of Structured Products, called “100% Principal Protection Notes,” promised to return some or all of the investor’s principal if held to maturity. UBS’ principal selling point in recommending the 100% Principal Protection Notes was safety. For example, a typical Structured Products Client Strategies Guide that UBS delivered to investors stated that the offerings provided “100% principal protection at maturity.” Another structured products brochure showed principal protection notes on the lower left of a risk/return graph and described them as appropriate for conservative investors who week to participate in the market and receive full or partial principal protection at maturity.

UBS marketed Lehman Brothers Principal Protection Notes to conservative investors who sought preservation of capital. However, the proceeds of these investments were used by Lehman Brothers to help cover its mounting losses in 2007 and 2008. In some instances investors were not even aware that their investments were loans to Lehman Brothers. It was not apparent from the trade confirmations and monthly statements that the investors had purchased a Lehman Brothers offering, as those documents described the security as “LB 100% PPN.”

By March of 2008, UBS knew that Lehman Brothers credit condition was deteriorating. On March 16, 2008, another investment banking firm, Bear Stearns Companies, Inc., was rescued by the United States government through an arranged sale to J.P. Morgan Chase. In the aftermath of the Bear Stearns collapse, it was widely speculated that Lehman Brothers might be the next investment bank to fail.

Hartzell & Whiteman obtained a copy of testimony given by William Thompson, a UBS sales consultant, in a regulatory proceeding brought by the New Hampshire Bureau of Securities Regulation. Mr. Thompson testified that after the Bear Stearns sale occurred UBS’ Structured Products Sales Desk directed its sales consultants to advise UBS brokers to contact customers to discuss their risk of continuing to own Lehman Brothers’ securities. Similar testimony was given by another sales consultant, Bruce Dillard, in the Chang arbitration.

[Click Here to View the Transcript of William Thompson in the New Hampshire Bureau of Securities Regulation Case]

It is likely that in many instances brokers were not made aware of the need to contact their customers or simply failed to follow through.

Throughout the spring of 2008, UBS issued a series of research reports on Lehman Brothers that discussed its deteriorating financial condition. On June 12, 2008, UBS suspended ticketing of five Lehman Brothers structured product transactions. According to an e-mail from UBS’ Structured Products Group, recent changes to Lehman’s management and the increase in volatility in the credit market warrant that we take additional time to determine if we want to move forward with these offerings this month. On July 14, 2008, UBS downgraded its recommendation on Lehman Brothers from “buy” to “hold.” However, despite its own negative internal assessments, UBS continued to sell Lehman Brothers Structured Product Notes through August of 2008. The last offerings closed less than three weeks before the Lehman Brothers bankruptcy.

If your UBS broker sold you or your client a Lehman Brothers Structured Product Note that failed, we would be pleased to review your case and its prospects in a FINRA arbitration. Hartzell & Whiteman attorneys and staff have substantial experience litigating cases involving securities issues. We represent individuals and businesses who have suffered financial losses due to fraudulent investment schemes sold by unscrupulous or inept investment promoters, stockbrokers, investment advisors and insurance salesmen.

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