SEC Order Against UBS Further Establishes Why Investors Should Not Trust UBS

SEC Order Against UBS Related to V10 Tracks Pending Claim Being Pursued by The Vernon Litigation Group and Further Establishes Why Investors Should Not Trust UBS

Yesterday,  UBS and the SEC came to terms on a cease and desist order relating to the improprieties by UBS in selling a product called V10.   Last year, Vernon Litigation Group filed claims against UBS on behalf of a UBS customer related to this very product.  That case is currently pending.  

V10 is a structured note, much like the principal protected notes peddled by UBS that cost investors billions less than 10 years ago.   This UBS version of structured notes was linked to a foreign exchange trading strategy called the V10 Currency Index with Volatility Cap.   This was a proprietary index, so the market did not exist for this product other than what was artificially created by UBS.   

As is now typical of UBS, it heavily sold this V10 UBS designed product to its own client base.  In total, almost 2,000 investors bought V10 and invested almost $200 million.   And although the SEC is allowing UBS to entered into this agreement without admitting or denying the findings herein –  which the SEC sadly does in most cases –  UBS consents to sanctions.  

As a result of its investigation, the SEC found that in the wake of the financial crisis, “UBS perceived that investors interested in diversifying their stock and bond portfolios were attracted to these types of structured products so long as the underlying trading strategy was transparent. UBS stated to investors that the V10 was a “transparent” and “systematic” currency trading strategy.  UBS further stated that the V10 was calculated using “market prices” for the relevant underlying financial instruments.”

The SEC then found that the representations by UBS to investors were lies.   Specifically,  the SEC found that UBS engaged in the following conduct that was undisclosed to investors:

Taking unjustified markups, engaging in hedging trades with non-systematic spreads and trading in advance of certain hedging transactions — that negatively impacted or, in the case of trading before hedging transactions, had the potential to negatively impact, pricing inputs used to calculate the V10.   

As it turns out, UBS’s V10 was neither transparent nor systematic; market prices were not consistently used to calculate the Index; and V10 Investors were thereby misled as to certain key features of this complex financial instrument.  As a result of the markups and spreads, the Index was depressed by approximately five percent, causing investor losses of approximately $5.5 million.

It is incredible that UBS has not been shut down or prosecuted as a criminal enterprise.  Three years ago, before V10 and a number of other situations in which UBS misled its own clients or engaged in numerous wrongs (including the Puerto Rican bond fund debacle), the New York Times made the following comments about UBS:

But in many ways, UBS is in a league of its own given its track record for scandals….The bank’s recidivism seems rivaled only by its ability to escape prosecution..  Our law firm alone has represented many, many investors in last few years that have been ripped off by UBS.   

Unfortunately, the SEC decision will only cost UBS a little over $10 million.  This amount is so small in connection with UBS’s revenues that it equates to a speeding ticket for one the many UBS victims.  Clearly, judging by UBS’s ongoing behavior, regulatory fines are not deterring UBS’s desire and willingness to take advantage of the investing public in any way that it can.  As a result, UBS just keeps on profiting off of its own client base through the sale of almost $3 billion in structured notes just last year.   

What UBS downplays and even regulators fail to focus on is that by selling structured notes to its clients,  UBS is in effect borrowing money from its own client base on terms that a professional lender would never offer UBS.  If a UBS advisor were to borrow money from one of UBS’s clients,  UBS would fire that advisor on the spot.  Yet UBS sees no problem in borrowing $3 billion a year from its own clients without collateral and on very favorable terms for UBS.  

UBS seems to have no qualms about repeatedly misleading the investing public to increase its own profits.   For instance, while promoting  the troubled V10 structured product,  a senior UBS employee was quoted as saying, “[i]n the current market, investors are looking for uncorrelated and highly transparent products and since the algorithmic model is pre-defined and the rules are made available, it is a glass box rather than a black box.”   As is now evident by the SEC investigation,  UBS’s statements that the V10 was “transparent” and “systematic” and that “market prices” were used to calculate the Index were lies.  

According to the SEC with respect to V10,  UBS employees in Switzerland added markups to certain hedge transactions, which led to prices being used to calculate the Index that were not consistent with market prices (despite the fact that there was no legitimate business justification for the amount of these markups).  The SEC also revealed that the FX spot desk at UBS added spreads (that were not adequately disclosed) to internal transactions undertaken to hedge UBS’s exposure to V10 instruments on certain days.  Finally, the SEC explained that UBS engaged in trades in management trading books shortly before executing potentially market-moving, internal V10 hedging transactions, which were directionally consistent with those hedging transactions.

Although investors may have a trustworthy UBS financial advisor, the type of wrongdoing regularly engaged in by UBS –  as evidenced by the V10 transaction –  is hidden not only from investors but also from UBS advisors.   As a result, UBS also deceives its own financial advisors when pushing proprietary products on them to sell to their own customers.

Vernon Litigation Group’s investigations and advocacy on behalf of investors have been featured in AARP magazine, Forbes and Barron’s.   The law firm  handles the litigation and arbitration of complex business and financial disputes, with an emphasis on securities fraud and securities arbitration, throughout the United States.  Chris Vernon,  the founding partner of Vernon Litigation Group, has also testified as an expert on investment matters as well as matters relating to FINRA arbitration.   

The Vernon Litigation Group has been repeatedly recognized in U.S. News and World Report’s  Best Law Firms in America (2009-2015),  and its lawyers are consistently receiving accolades such as Martindale-Hubbell AV rating (which is the highest peer review rating available to an attorney), Super Lawyers and the Best Lawyers in America publications.  In addition to its investigation into UBS’s V10 and Puerto Rico activities, the Vernon Litigation Group currently represents clients against other international institutions such as Banco Popular.  

Vernon Litigation Group details Activity in V10 Structured Notes in Arbitration claim filed on behalf of $1 million investor

The Vernon Litigation Group is currently pursuing FINRA arbitration claims against UBS Financial Services, Inc. (CRD #8174). The claims arise out of V10 structured note wrongdoing by UBS in connection with accounts in Naples, Florida, but which also involved issues in Utah, throughout the U. S., and London, England. In fact, news media in the U.S. and Europe are now reporting that UBS is currently being investigated by civil and criminal authorities over the sale of the V10 structured notes.

The specific product that is the subject of the claims currently being pursued in FINRA arbitration by the Vernon Litigation Group is UBS AG Performance Security Linked to the UBS V10 Currency Index with Volatility Cap (“V10”). The claims assert improprieties relating to representations about V10 and the returns generated by V10. One of those misrepresentations was the fact that UBS falsely represented that the U.S. dollar was not part of the V10 eligible currencies. Moreover, due to the misrepresentations, the financial markets were in a state of confusion regarding the V10 and, as a result, had trouble pricing the V10 (in essence there were two prices in the market for the V10, depending on the type of information used to price it).

Huge Financial Institutions Turn into Sales Machines

We find it unconscionable that huge financial institutions market “objective advice” and trust, but instead turn themselves into manufacturing and sales machines which dump products on their clients that are literally designed to profit the financial institution—and the benefit to the investor is simply a by-product and a sales tool. Structured products such as UBS’s V10 are great examples of this questionable practice.

More specifically, the FINRA case we filed on behalf of a V10 investor alleges that UBS made the following representations about V10:

• V10 was a liquid instrument similar to ETFs.
• V10 offered complete capital preservation with the issue price of $10/share being the lowest it could go (i.e., capital protection).
• V10 was the ideal instrument for investors who wanted capital preservation but desired some way to take advantage of foreign currency volatility.

Pending FINRA Case Makes Matters Worse

The impropriety surrounding the sale of V10 was made even worse in the pending FINRA case because the advisor recommended the use of a UBS low interest rate credit facility called the UBS Premier Variable Credit Line (“UBS loan”) through UBS Bank USA, Inc. to fund the investment in V10. Unbeknownst to the client, UBS’s advice was effectively circumventing both industry rules (including UBS’s own rules) and law that restricts the use of such borrowed funds for said purposes, according to the claim.

The claim also states that when the investor requested that his V10 investment be sold, the sale did not occur. Instead, UBS responded by saying it would be contacting UBS Bank USA (i.e., the institution through which UBS issued the significant loan to buy the V10) to demand repayment of the loan within 10 days. If UBS Bank USA did not receive full repayment of the loan by the set deadline, UBS would exercise UBA Bank USA’s right to forcefully liquidate the client’s portfolio for the benefit of UBS Bank USA.

Allegations of Gross Misconduct and More Against UBS

The Vernon Litigation Group has alleged that this is far more than a negligence case. The claim alleges a pattern of gross misconduct on the part of UBS, including the creation and misleading marketing of a complex and opaque structured product. This is in addition to the grossly inappropriate recommendation of a loan from a parent company to purchase a UBS structured product (V10). The Vernon Litigation Group is also investigating other improprieties by UBS in connection with this FINRA arbitration claim that may have broader implications. For these reasons (among other reasons outlined in the pending FINRA case), the Vernon Litigation Group is seeking punitive damages.

As stated earlier, it now appears that some of the allegations being made by the Vernon Litigation Group are part of the investigation by civil and criminal authorities in the United States. In fact, news media outlets are reporting that the U.S. Department of Justice is examining whether UBS – as well as Barclays and others – neglected to disclose all profits from currency trades that should have been part of V10’s returns for investors. One Bloomberg article focused on the fact that numerous authorities around the world are probing the $5.3 trillion-a-day currency market. V10 and the other structured products involved in the investigation are based on what is known as the “carry trade.” The carry trade is a type of arbitrage and involves borrowing using a low-yielding currency and investing using a higher-yielding one, earning the difference in the rates or spread.

With respect to V10 specifically, the authorities also seem to be investigating whether certain investors were allowed to shift their positions in a volatile currency market. Vernon Litigation Group has also been investigating this issue. One news story referenced the findings of The Swiss Financial Market Supervisory Authority (FINMA) that UBS had inadequate risk management controls and compliance in its foreign currency trading, which led to a $139 million fine against UBS this past November.

SEC Demands More Transparency

We find all this especially troubling given the following public representation by UBS in a section of a publicly available document entitled “Better information, more transparency.” In this section, UBS acknowledges that the structured product market is a “very confusing product jungle” and that “a product’s risk can change quickly over its term.” With respect to this latter point, it makes you wonder why UBS would promote this type of product to investors—given its very limited and artificial market. In this publicly available document, UBS also acknowledges that “[i]nstead of throwing a product on the market in a flurry of advertising hoopla, in the hope that as many clients as possible will bite, the process should actually work the other way around.”

Structured notes have been around since the 1980s, but for years sales were limited to institutional investors. With the recent surge in sales to retail investors, the Securities and Exchange Commission has been demanding more transparency and is apparently now investigating UBS’s profiteering and abuse from that lack of transparency.

In the last five years, Vernon Litigation Group has filed over $10 million in claims against UBS alone related to the deceptive sale of structured notes. UBS does not discriminate in the sale of these products because victims represented by the Vernon Litigation Group include everyone from octogenarians, nurses, schoolteachers, and ministers to trial lawyers and ultra-high net worth entrepreneurs.

About The Author

Chris Vernon, founding partner of the Vernon Litigation Group (with offices in Naples, Orlando, and Atlanta), advocates for the rights of investors throughout the United States and abroad—both in and out of the courtroom and arbitration hearing room. Mr. Vernon currently holds an AV rating by Martindale-Hubbell and has been repeatedly recognized by his peers in publications such as Super Lawyers and The Best Lawyers in America. Mr. Vernon has spoken at both national securities and national trial attorney conventions and has also conducted continuing education in the U.S. and abroad for securities regulators, CPAs, CFAs, CFPs, investment professionals, board certified business litigation lawyers and board certified trust and estate lawyers.

Contact Vernon Litigation Group Today

For more information on whether you have a claim involving a structured product, contact the Vernon Litigation Group at 239-649-5390 or Toll Free at 877-649-5394 or email

The Campaign to Make Structured Notes Transparent: Is the SEC on a Fool’s Errand?

Structured notes have been around since the 1980s, but for years sales were restricted to institutional investors.  With the recent surge in sales to retail investors, the SEC is demanding more transparency.  According to American Banker, over the past twelve months the SEC’s Office of Capital Market Trends has been trying to obtain information from Citigroup, Bank of America, JPMorgan Chase and other structured note issuers about their pricing practices and risk warnings for these products.

The question is whether it is even possible to make structured notes transparent.

Structured notes come in many forms, including the reverse convertibles that are the subject of our December 19, 2012 article.  These products are so complex and variable that it is difficult to come up with a single definition that applies to every type of structured note.  In their most basic form, they are unsecured loans that – instead of paying interest like regular notes and bonds – pay returns based on a derivative tied to an index, equity or fund.  Like any debt security, structured notes are subject to the credit risk of the issuer.  However, that risk is often not made clear to retail customers.  The SEC is asking that sellers provide prominent warnings about credit risk.

Structured notes are being marketed to investors as attractive alternatives to bonds in the low-yield environment that currently exists.  However, the pricing of structured notes is not at all the same as the pricing of bonds.  The SEC is concerned that issuers and financial advisors are not adequately explaining those crucial differences to investors.

Pricing Concerns: Structured products are difficult to value, since they are illiquid securities that often reference hard-to-value derivatives.  Furthermore, the issuer often adds inadequately disclosed fees that add to the cost to the customer.  The absence of an active secondary market for structured notes can hide both the inflated valuations and the added costs.

It is common practice for issuers to estimate the value based on the prices of other bonds and derivatives that are traded more often.  This practice can lead to estimated valuations that are not just inaccurate; they can be misleading.

In a letter to JPMorgan quoted in American Banker, SEC Office of Capital markets Chief Amy Starr expressed concern about using more widely traded derivatives to arrive at these estimates (called “mid-market inputs”).  “If you do not use mid-market inputs, we believe you should disclose this fact, describe what you use, and the risk that the embedded derivative is being valued differently than other similar derivatives.”

Of even more concern, is the possibility that the issuers’ valuations may purposely inflated.  Sometimes multiple, inconsistent values are placed on the same product.  The American Bankerreports that the SEC is also questioning banks’ practice of providing customers with valuations for the notes that are higher than their own internal valuations.

Can the SEC make structured notes transparent enough for the average investor to understand their value and their risks? Not according to Norway.  In 2008, the Norwegian government made it unlawful to sell structured notes to retail investors. Five years later, the SEC is still trying to put duct tape on a product that may very well be unfixable.

Reverse Convertible Concerns

Reverse convertibles are a type of structured note.  It is essentially is an unsecured loan to a company – the note component – wherein at maturity the investor may receive common stock of a publicly traded company that the structured product is tied to as opposed to repayment of the principal amount of the loan.   In other words, if you buy a structured note tied to Microsoft stock, then the lender can repay you the principal loaned to you if Microsoft’s stock price goes up and, if the price of Microsoft stock goes down below the knock in level/barrier during the life of the loan, the investor can get put a predetermined number of shares of the stock to you instead of repaying any of the principal of the money loaned. Reverse convertibles can be notes tied to individual stocks or stock indexes or other indices. Also, firms sell inverse reverse convertibles, which have knock in levels when the underlying stock goes up rather than down.

You may own Reverse Convertible notes without even knowing it.   Because each brokerage firm has very different names for these products,  “Reverse Convertible” is usually not part of the name. Regulators share some of our concerns regarding these products.  It is our belief that the major brokerage firms are overselling reverse convertibles to fixed income investors looking for low risk products with better returns than are now available from traditional fixed income products.

The complexity of reverse convertibles leads some regulators to believe that many individual financial advisors do not fully understand the product they are recommending. Some regulators have also asserted that reverse convertibles should only be recommended to investors who are approved to do options trading.

Although trying to describe reverse convertibles can be complicated and confusing, it can be greatly simplified by replacing Wall Street with an individual investment advisor.  Consider, the following example:

One’s trusted investment advisor coming to their home one night and says, “I have a great investment for you. I would like you to give me a loan for $100,000 with a term of one year.”

He doesn’t say what he needs the loan for or even that he needs a loan.  Rather, he is recommending this deal to you as a good investment. He could go to the bank and borrow the money, but they would require him to secure it with collateral that the bank could seize in the event he didn’t pay back the loan with all interest.

He says, “so, as your trusted advisor, in order for me to make this a good deal for you, I need that $100,000 on an unsecured basis.  As an incentive, I will pay you extra interest over the life of the loan.” He offers two methods of recovering your money, “when the loan matures, either you will get you your money back with interest or you will get back today’s value in the stock of Microsoft which is selling at $25 a share, so you would get 4000 shares.”

What the client may not understand is that the financial advisor determines whether the loan will be repaid or whether he will get the stock instead. Simply put, the investor gets the $100,000 loan repaid with a bit of interest back if Microsoft stock goes up, or the investor gets 4,000 shares of Microsoft stock if the share price drops.  In the latter case, the investor gets  less than the original amount borrowed. This trusted financial advisor assures his client that this is a good deal for him.

Now, setting aside the significant risk of loaning significant funds on an unsecured basis (credit risk), this trusted advisor now has the client’s $100,000 to use or invest however he sees fit. For the sake of this example, let’s say he already owns the 4,000 shares of Microsoft in his personal portfolio when he makes this proposal. If Microsoft’s stock drops to $10 a share, the trusted advisor is covered. He simply delivers 4,000 shares of Microsoft, now valued at $40,000 and he  keeps the $100,000. He just purchased $100,000 for only $40,000. If the price of Microsoft goes up to $50 a share, the advisor sells his 4,000 shares of Microsoft for $200,000, returns the investor’s $100,000, and pockets the extra $100,000.  The client took on enormous risk in order to benefit the advisor, and while the client might come out a little bit ahead, it is the advisor who took on no risk and made all the profit.

The only difference between this example and what is going on today in major brokerage firms around the country is that the loan is being made to the Wall Street firm where your trusted advisor works rather than directly to your trusted advisor.

As you can see from this example, reverse convertibles pose unique risks in addition to the risks that are common to other forms of debt securities.  While a traditional short term note exposes the purchaser to the issuer’s credit risk (will the issuer be able to repay the debt?) and the liquidity risks of other forms of structured products, investors in reverse convertibles are also separately and additionally exposed to the risk of a decline in the price of the referenced stock.  Those risks were dramatically demonstrated when Lehman Brothers collapsed and the issuers of notes tied to Lehman stock were able to avoid repaying the loans by substituting worthless Lehman stock from their own inventory for the note.

Wall Street focuses on the potential for the (capped) gains in portraying this as a good investment  while ignoring the conflicts of interest and the profiteering off the deal by Wall Street.  However, we at Vernon Litigation Group believe because this this huge conflict of interest is not acknowledged, even the best financial advisors may be hampered in their efforts to  put the interests of the client first.

Lending Facility Concerns

While many investment advisors are recommending structured products to their clients, many investors are left wondering what structured products are. These are highly complex derivatives with pitfalls and risks that are inadequately disclosed.

Structured products, also known as structured notes, are now being used by major brokerage firms to turn their own client base into a lending facility. The underlying concept for structured products is disturbing in that your trusted financial advisory firm or wealth management firm is advising you, the client, to loan money to it – or one of its brethren on Wall Street – on an unsecured basis.  These same firms summarily fire individual financial advisors who solicit loans from their clients. Similarly, regulators such as FINRA, the Financial Industry Regulatory Authority, regularly investigate and punish individual financial advisors who borrow money from a client. The fairness of the terms and return is immaterial, financial advisors are forbidden from soliciting loans from their own customers.

However, FINRA and the brokerage houses turn a blind eye when it is the firm thaqt solicits the loan.  There is an industry-wide willingness to disregard the massive conflict of interest created by a brokerage firm borrowing money from its own clients on a widespread basis that is embedded in these structured note products.

When investors buy a structured note issued by their own brokerage firm, the money is essentially an unsecured loan for that brokerage firm to use for operations or however it sees fit.   Why would the major brokerage firms borrow money from you instead of going to a bank or institutional lender?  In our opinion, they aren’t doing this to provide you with a wonderful investment opportunity, but rather they’re doing it because they can get much better loan terms from you than they could get from a banker or professional lender.

In the March 2012 issue of AARP Magazine, Vernon Litigation Group co-founder, Chris Vernon, succinctly explained the problems with structured products when he was quoted as saying “The financial industry is effectively using structured products to borrow billions of dollars from Main Street investors with no collateral.”

The Lehman bankruptcy graphically illustrated the dangers associated with structured products. Beyond the fallout of the Lehman bankruptcy, at Vernon Litigation Group we remain concerned about the promotion and sales of Structured Notes (which are still being heavily sold to retail investors in our home city of Naples and throughout the country by the big financial institutions).

Vernon Litigation Group files another $800,000 in claims against UBS on behalf of Lehman principal protected notes investors

Naples, Fla. — UBS fraudulently misrepresented the safety of so-called Lehman principal protected notes that the firm sold to two elderly widows at a time when UBS knew of Lehman’s increasing financial desperation, according to separate claims filed today by the Vernon Litigation Group investor advocacy law firm.

The promised principal protection constituted a gross deception because the Lehman notes represented nothing more than unsecured loans by the investors to a financially faltering Lehman, according to the claims.

UBS knew of Lehman’s financial desperation — more than a year before Lehman filed bankruptcy — and was loaning Lehman money at predatory rates behind the scenes so that Lehman could remain solvent, according to the claims.

One woman, an elderly widow, was sold $750,000 in Lehman principal protected notes and Lehman structured products, in the last year of her life, according to the claim filed by Vernon Litigation Group on her behalf today. She died in September 2008, the same month that Lehman filed bankruptcy, leaving behind 19 great-grandchildren.

The other woman, an 83-year-old widow from Naples, was sold $50,000 in Lehman principal protected notes in January 2008, less than nine months before Lehman Brothers filed for bankruptcy, according to a separate claim also filed by Vernon Litigation Group today.

“The ‘principal protected’ label was grossly misused by UBS to deceptively market products with no ‘principal protection’ or ‘guarantee’ whatsoever beyond the promise of repayment by the borrower that exists with virtually any note or bond,” according to the claims.

Just over a year ago, UBS was censured, sanctioned, and fined as a result of the Financial Industry Regulatory Authority’s investigation into UBS’s improprieties in promoting the Lehman structured products that were labeled as being “100 percent principal protected.”

FINRA fined UBS $2.5 million and ordered the Swiss firm to pay $8.5 million in restitution to Lehman notes investors. UBS sold an estimated $1 billion in Lehman notes to investors.

Lehman note holders have been left standing at virtually the back of the line with other unsecured creditors in the Lehman Brothers bankruptcy. Lehman note investors received an initial distribution on April 17, but the initial distribution amounted to about 5 percent of investors’ principal investment.

“Much like the FINRA fine and restitution Order, the bankruptcy distribution is woefully inadequate to rectify the harm done to our clients,” securities attorney Chris Vernon, of the Vernon Litigation Group law firm, said. In fact, the remaining distributions to investors will take another 3 to 5 years and will amount to less than 25 cents on the dollar according to information obtained from the Trustee by Vernon Litigation Group.

“UBS customers who were hoping to recover their losses from the bankruptcy court now know just how paltry that amount will be,” said securities attorney Susan Healy, of the Vernon Litigation Group law firm. “FINRA arbitration is their best chance for meaningful compensation.”

In an effort to gain additional recovery for investors beyond the bankruptcy and regulatory proceedings, Vernon Litigation Group has filed more than $13 million in claims on behalf of individual Lehman note investors. Vernon Litigation Group’s investigation and advocacy on behalf of Lehman note and structured product investors has been highlighted in AARP magazine.

For more information contact:

Chris Vernon
Vernon Litigation Group, attorneys at law
(239) 649-5390

Lehman bankruptcy liquidation to provide poor recovery to 100 percent principal protected notes investors says Vernon Litigation Group investor advocacy law firm

Naples, Fla. — Investors holding Lehman 100 percent principal protected notes or other Lehman structured products are now receiving word that their share of the initial Lehman bankruptcy distribution on April 17 amounts to 6 cents on the dollar.

“We’ve been informed by a representative of Wilmington Trust, the bankruptcy trustee that is handling Lehman notes distributions, that Lehman note holders may receive up to 21 cents on the dollar with that amount dribbled out over the next 3 to 5 years through the bankruptcy liquidation process,” said investor rights attorney Chris Vernon, of the Vernon Litigation Group law firm. “In our ongoing efforts to assist investors, we are aggressively pursuing UBS in arbitrations before the Financial Industry Regulatory Authority for fraudulent misrepresentations to investors that their Lehman notes were safe and 100 percent principal protected.”

Vernon Litigation Group has aggressively represented investors with more than $13 million in arbitration claims against UBS on behalf of Lehman note holders.

“We believe that this updated information from the bankruptcy trustee will shock those defrauded investors who have not obtained legal counsel yet and have held out hope that the bankruptcy process would provide them with some meaningful recovery,” Vernon said.

Vernon Litigation Group’s advocacy on behalf of Lehman notes investors was featured in an AARP magazine article about the dangers of investing in structured products, which continue to be pitched by brokerage firms to retirees as safe investments. Vernon Litigation Group’s ongoing investigation continues to reveal numerous concerns in relation to the sales of Lehman notes by UBS that have not been addressed by FINRA or federal regulators.

Vernon Litigation Group claims have alleged that UBS fraudulently misrepresented Lehman principal protected notes not only to its brokerage firm clients but also to some of its own financial advisors, who continued to sell Lehman principal protected notes as safe investments to investors well after UBS knew Lehman was in financial trouble.

A second distribution in the Lehman Brothers bankruptcy is scheduled for Sept. 30, 2012 and a third distribution is scheduled for March 30, 2013 with semi-annual distribution thereafter. The Lehman Brothers bankruptcy in September 2008 is the biggest bankruptcy in U.S. history, and it touched off the world financial crisis and most significant economic recession since the Great Depression.

Former CEO Bryan Marsal, who ran Lehman during the bankruptcy, painted a bleak picture for creditors when he told Bloomberg Businessweek that the firm will continue selling assets through 2014 as it tries to raise a total of $65 billion to pay estimated claims of $370 billion.

Bloomberg Businessweek also noted that Enron investors were paid 53 cents on the dollar while average Lehman creditors will receive only an estimated 18 cents on the dollar.

For more information contact:

Chris Vernon
Vernon Litigation Group, attorneys at law
(239) 649-5390

Vernon Litigation Group Claim: UBS Used Bait and Switch While Selling Ohio Business Owner Lehman Notes

Naples, Fla. – UBS fraudulently misrepresented the investment products it was selling to an Ohio business owner, leading him to believe he was buying principal protected notes backed by UBS when in fact he was sold Lehman notes that were backed by the then financially struggling Lehman Brothers, a claim filed today by securities attorneys at Vernon Litigation Group states.

The Ohio investor made numerous purchases for principal protected products recommended by his UBS financial advisor and totaling more than $150,000, the claim states. Even though the documents provided with the advisor’s initial sales pitch reflected UBS as the entity backing the notes, the actual purchase made on the investor’s behalf was for Lehman notes.

Moreover, the name “Lehman Brothers” did not appear on either the trade confirmation or on the monthly statements, the claim asserts. The sudden switch is especially troubling due to the fact that UBS recommended and sold the Ohio investor Lehman structured products just weeks before Lehman filed for bankruptcy. At that point, UBS clearly knew Lehman Brothers was in deep financial trouble, the claim asserts.

UBS had been well aware of Lehman Brothers financial woes long before it recommended structured products to the Ohio investor. Specifically, UBS had been propping up the faltering company with ultra-high interest loans in 2007 and 2008 while selling Lehman products to retail investors for huge profits.

“UBS engaged in a campaign to downplay and ignore concerns about Lehman’s creditworthiness,” said Chris Vernon, founder of Vernon Litigation Group. “UBS encouraged, and in some cases even deceived its financial advisors into continuing to recommend these products to individual investors without advising them about Lehman’s credit and liquidity risks.”

Once the Lehman bankruptcy was underway, the Ohio business owner joined thousands of other Lehman notes holders left standing at the back of the line with all unsecured creditors.

In addition to compensatory damages, Vernon Litigation Group is seeking significant punitive damages on behalf of the Ohio investor in light of UBS’s gross malfeasance, the claim states.

Vernon Litigation Group has filed more than $12 million in Lehman notes arbitration claims on behalf of investors before the Financial Industry Regulatory Authority. The firm’s investigation of Lehman notes was featured in an AARP magazine article about the dangers of investing in structured products, which continue to be pitched by brokerage firms to retirees as safe investments. Vernon Litigation Group’s ongoing investigation continues to reveal numerous concerns in relation to the sale of Lehman notes that have not been addressed by FINRA or federal regulators.

The securities attorneys at Vernon Litigation Group represent individuals and businesses nationwide in disputes involving all manner of financial fraud and negligence, including Lehman notes, structured products, non-traded REITs, hedge funds, mutual funds, annuities, tax shelters and other investment products.

Chris Vernon
Vernon Litigation Group
(239) 649-5390

Investors harmed by the Lehman Brothers bankruptcy get mixed messages this week

The Lehman Brothers bankruptcy that shook the financial world in 2008 still has investors who lost billions in the collapse wondering when they will begin to recoup their losses. Two decisions this week – one by a judge and the other by the Lehman Estate – did little to bring clarity to the situation or hope that investors will see a significant portion of their money anytime soon, say securities attorneys at Vernon Litigation Group, the investor advocacy law firm.

In one development, a New York bankruptcy judge cleared the way for Neuberger Berman Group LLC to buy the 48 percent remaining equity interest in that company from Lehman Brothers Holdings Inc. over five years, generating about $1.5 billion.

In a second development, Lehman Brothers Holdings Inc. said it would take on billionaire Sam Zell’s Equity Residential in a fight for control of Archstone, the company’s largest real estate asset. After the Lehman collapse, the company owned 47 percent of Archstone and banks held the remaining 53 percent. But the banks sold half their holdings to Zell earlier this month, and Zell is seeking to buy their remaining 26.5 percent. Lehman Holdings will seek permission this week from a bankruptcy judge to exercise its option to match Zell’s offer with a $1.33 billion offer of its own.

While the Neuberger Berman deal injects a significant amount of cash into Lehman Holdings’ coffers, it appears the money is coming in over five years, meaning investors may see a trickle of cash versus a lump sum. Some estimates put the overall recovery for most investors in the 18 to 20 cents on the dollar range. If these estimates are correct, then investors may suffer an 80 percent or more loss of principal from products that UBS represented to be “principal protected.”

“UBS simply deceived my clients and thousands of other investors – as well as many UBS financial advisors – with respect to the principal protection in these products.  This deception was especially egregious given what UBS really knew about Lehman’s financial situation, including the Archstone purchase,” said securities attorney Chris Vernon of the Vernon Litigation Group law firm.

And the current Lehman contest with Zell over control of Archstone, while possibly viable for a healthy company is questionable in light of the bankruptcy, Vernon said.

“Lehman made a bad business decision in acquiring Archstone. Given the number of retail clients of UBS and other firms caught up in this bankruptcy as unsecured creditors,  Lehman should be focused on liquidating assets and distributing the proceeds to my clients and other unsecured creditors rather than extending the time that Lehman structured note investors have to wait to recoup what they can from the bankruptcy,” Vernon said.

Christopher Vernon represents investor clients with more than $10 million in losses due to the Lehman Brothers bankruptcy. Vernon’s investigation into Lehman structured products has been featured in AARP magazine.

Contact for media inquiries.

Chris Vernon
Vernon Litigation Group

UBS fraudulently hawked Lehman principal protected notes to clients,Vernon Litigation Group investor claim states

Naples, Fla. — UBS fraudulently misrepresented Lehman principal protected notes in a heavy sales push to its brokerage firm clients at a time when it was systematically shedding its own Lehman debt behind the scenes in advance of the Lehman Brothers bankruptcy, according to a claim filed today by the nationwide investor advocacy law firm Vernon Litigation Group.

Holders of Lehman notes have been left standing at the back of the line with unsecured creditors in the Lehman Brothers Bankruptcy despite the fact that UBS marketed the notes as safe and principal protected, according to the claim. UBS sold an estimated $1 billion in Lehman principal protected notes to main street investors who are now holding virtually worthless paper, according to the claim.

Vernon Litigation Group filed close to a half million in claims today on behalf of two UBS clients who assert that they were fraudulently sold Lehman structured products that UBS touted as safe and “principal protected.” The law firm has filed close to $12 million in Lehman notes arbitration claims on behalf of investors before the Financial Industry Regulatory Authority.

Vernon Litigation Group’s investigation was featured in AARP magazine in an article about the dangers of investing in so-called structured products, which have been increasingly sold by brokerage firms to retirees in recent years as safe investments.

UBS provided misleading and fraudulent marketing and training material to its own sales force of financial advisors who were encouraged to push sales of Lehman structured products to main street investors, the claim states. Behind the scenes, UBS was propping up the financially faltering Lehman with loans and charging Lehman high interest rates, a situation that demonstrated Lehman’s desperation and poor credit worthiness, the claims assert.

“As a creditor of Lehman, UBS was in a unique position to assess Lehman’s increasing financial difficulties.  However, despite its knowledge of Lehman’s financial situation, UBS failed to warn its financial advisors or its clients of the increasing risk posed by Lehman structured products,” a claim today filed by Vernon Litigation Group on behalf of an investor states.

Vernon Litigation Group is seeking significant punitive damages on behalf of investors in light of UBS’ gross malfeasance, the claim states. UBS made lucrative profits on its predatory lending strategy to a desperate Lehman at a time when it was making enormous profits on fees and commissions by deceptively selling mom-and-pop investors. UBS told these investors that as a worst case scenario their principal investment would be protected, the claims state.

For more information about Vernon Litigation Group’s nationwide investigation of Lehman notes, see the firm’s web site

The securities attorneys at Vernon Litigation Group represent individuals and businesses in disputes involving all manner of financial fraud and negligence including related to Lehman notes, structured products, non-traded REITs, hedge funds, fund of funds, bonds, mutual funds, annuities, tax shelters and other products.

For more information, contact:
Chris Vernon, attorney at law
Vernon Litigation Group
(239) 649-5390