UBS (NYSE: UBS) designed the Lehman structured products and marketed some of these structured products to its customers as safe and 100 percent principal protected even though the principal protected notes were essentially unsecured loans to now-bankrupt Lehman Brothers, according to the Vernon Healy claim filed today. UBS also sold its own structured notes to the couple, violating the spirit of an industry rule that forbids borrowing from customers.
The couple was worried about market instability and sought help from UBS in 2007 and 2008 to take their money out of the market and put it something safe.
UBS consistently portrayed the Lehman notes investments as “100%” principal protected on monthly statements to the couple, but the firm knew the notes were no more principal protected than other unsecured notes issued by borrowers. UBS continued to push these products to its financial professional and retail investors long after it knew Lehman was at risk of failing.
UBS sold these high-risk products to the couple -- a sales manager and an elementary school employee -- when a staggering 70 plus percent of Lehman’s own assets were over concentrated in risky mortgage and real estate assets. At the time, Lehman was also in debt to UBS under high-interest, short term loans known as Repo 105 that were highly lucrative for UBS and which put UBS in the unique position of being able to assess and take advantage of Lehman’s increasing financial difficulties.
“Based on our ongoing investigation, it now appears that UBS was continuing to sell Lehman structured notes in the spring and summer of 2008 as though they were the equivalent of structured notes backed by other companies that were more stable and less of a credit risk than Lehman,” said Christopher Vernon, a founding partner of the Vernon Healy Law Firm.
The claim, filed before FINRA, the Financial Industry Regulatory Authority, seeks to recover the entire investment, plus attorney’s fees and costs, as well as treble damages to punish UBS for its wrongdoing in this case. The Vernon Healy law firm has already filed millions of dollars in claims against UBS on behalf of Lehman structured note investors and anticipates filing additional claims through the balance of 2010.
The allegations in the couple’s claim include the corporate level wrongdoing of UBS in continuing its campaign to recommend these illiquid Lehman structured products to its own financial advisors and its retail investors without noting the significant and increasing risks tied to Lehman’s creditworthiness.
According to the allegations in the claim, UBS’s actions also ran contrary to an advisory notice that NASD (now FINRA) issued in 2005, warning brokerage firms against selling structured products to any investor not approved for options trading. More recently, FINRA warned member firms that failed to abide by the 2005 notice that they would have to explain why.
Vernon Healy is a Naples, Florida law firm that already represents UBS investors in Florida and multiple other states in the U.S. Vernon Healy’s ongoing investigation of Lehman structured note sales in the United States has now expanded to sales of Lehman structured notes in Europe as well as the sales of other types of structured products sold in the U.S, such as “reverse convertibles.” The attorneys at Vernon Healy collectively have more than 30 years of experience representing investors who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct. Vernon Healy securities attorneys are experienced in securities arbitration and business litigation and assist clients in recovering losses caused by all manner of financial fraud and negligence.
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
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