Some investors who purchased Lehman brothers 100% principal protected notes gave a sigh of relief with a March 2011 ruling which allows them to recover some or all of their now almost worthless investment.

The Financial Industry Regulatory Authority (FINRA) came down hard on UBS, the Swiss-based financial services behemoth, with a $2.5 million fine.

The action resulted from the firm’s pushing some of Lehman’s notes as safe only months before the firm collapsed into bankruptcy proceedings in 2008.

FINRA is the biggest independent regulator for all securities firms that do business in the United States. FINRA’s mission statement: to protect America’s investors by making sure the securities industry operates fairly and honestly.

What Investors Can Expect

In addition to the fine, UBS agreed to return either partial or whole sums to some investors who purchased the Lehman Brothers notes between March and June 2008.

In all, USB will return more than $8 million to some of their customers. Investors purchasing the Lehman notes who said their investment goals were “conservative” will receive their entire principal investment.

Those investors labeling their investment approach as “moderate” will get back half their investment. UBS sold $16 million worth of the Lehman notes to these two groups during the spring of 2008, FINRA said.

The notes, structured like a zero coupon bond, had their investment potential tied to an equity fund index, such as the Russell 2000.

FINRA felt UBS was remiss in fully disclosing the full risk inherent in these so-called “principal protected” notes. While playing up the principal protection clause, UBS failed to adequately reveal the limits to the protection.

Specifically, they failed to relate that that principal protection was dependent on the issuer staying in business until maturity of the notes.

In effect, the notes were nothing more than unsecured Lehman Brothers liabilities. And when the firm went into bankruptcy in 2008, their value fell to pennies on the dollar.

"This matter underscores a firm's need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors," Finra said. "In some cases, UBS' financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer's credit risk so investors would understand the magnitude of the potential losses."

UBS Response

While UBS expressed they were happy to get resolution in this matter, they said the majority of their “Lehman structured product sales were conducted properly and any client losses were the direct result of the unprecedented and unexpected failure of Lehman Brothers”.

In all, UBS will have spent in excess of $25 million in arbitration and settlement of the cases tied to these notes.

Have you suffered a loss from investing in Lehman Brothers or Lehman Brothers products?

Find out if you can get compensation for your Lehman Brothers losses. Complete the form on this page or call 1-800-934-2921 for a free consultation.