Lehman Notes - Structured Products, Lehman Brothers Principal Protected Notes, Lehman Backed Bonds, Lehman Brothers Bankruptcy

Lehman Bankruptcy Examiner's Report is more evidence that UBS wronged structured products investors

By Chris Vernon

The 2,200 page Lehman Bankruptcy Examiner’s Report issued in March is another nail in the UBS coffin in FINRA arbitrations involving Lehman principal protected notes and other Lehman structured notes. Although the Lehman Report deals with a lot of complex transactions and related terminology such as “counterparties” and “Repo 105,” at its core, it reveals additional wrongdoing by UBS that is both simple and disturbing.

Specifically, the Lehman Bankruptcy Report reveals that for much of the time that UBS was convincing its own clients to loan money to Lehman through Lehman principal protected notes and other structured products, UBS itself was loaning money to Lehman on far safer and far more profitable terms than the structured note loans.¹ UBS was able to negotiate these favorable loans for its own benefit because it was well aware of and taking advantage of Lehman’s desperate financial situation.

As revealed by the Lehman Report, UBS acted as a “counterparty” to the now infamous “Repo 105” transactions. Effectively, by acting as a “counterparty” to the “Repo 105” transactions, UBS was making high interest loans to Lehman on a collateralized and very short term basis.² These loans kept Lehman’s toxic assets off the books just long enough for the company to pay off some debt, issue rosier quarterly reports in late 2007 and early 2008³ and then borrow more money to buy back the toxic assets.

Acting as counterparty, UBS was making a lot of money from loaning money to Lehman despite the fact that the loans by UBS to Lehman were short term and despite the fact that UBS received collateral to repay the loan in the event that Lehman defaulted. This arrangement is in stark contrast to the much longer term loans that UBS was simultaneously recommending that its own clients make to Lehman on a completely unsecured basis through Lehman structured notes.

UBS’s recent public statement that the Lehman Bankruptcy Report does not show that the “counterparties acted inappropriately” both highlights and misses the point in the context of UBS clients who were sold Lehman structured notes such as the Lehman principal protected notes. In contrast to the UBS public statement, the Lehman Bankruptcy Report is significant additional evidence that may lead FINRA arbitration panels to award punitive damages in favor of former UBS clients who bring claims against UBS relating to Lehman structured notes.

How outrageous was UBS’s behavior?  While still selling Lehman structured notes to investors who have retained our firm and many others in March of 2008, UBS charged the now “desperate” Lehman a fee of $186 million on a very short term and fully collateralized multi-billion dollar loan. If this short term loan return were annualized, it would equate to a return to UBS of more than 150 percent on the loan. As one of Lehman’s own employees said in early 2008, “Everyone knows 105 is an off balance sheet mechanism so counterparties are looking for ridiculous levels” to try to squeeze Lehman.

The Vernon Healy Law Firm is now investigating whether UBS decided at some point that Lehman was in such bad shape that it should scale back on the “Repo 105” loans even though they were collateralized, short term, and lucrative. If such a scale back occurred, then an issue will be whether UBS took any similar action in 2008 to inform or protect its own structured note clients in connection with their exposure as lenders to Lehman.

Prior to the release of the 2,200 page Lehman Bankruptcy Examiner’s report in March 2010, UBS had already lost multiple FINRA arbitrations related to Lehman structured notes. Therefore, the information disclosed by the Lehman Bankruptcy report builds on an already troubling trail of Lehman red flags that were ignored by UBS, such as: Lehman’s status as the lowest rated of the investment banks;  Lehman’s Archstone deal that was a disaster for the company⁴;  Lehman’s illiquid balance sheet assets that rose 300 percent from 2006 to the first quarter of 2008⁵;  Lehman’s underwriting of more mortgage-backed securities in 2007 than any other firm, resulting  in a staggering percentage of Lehman’s overall equity being tied up in risky assets; and dramatic write-downs by Lehman.

A cross section of Vernon Healy’s clients with Lehman structured note claims, including baby boomers, a teacher, a hospital employee, wealthy retirees, and a charitable foundation reveals how aggressively and indiscriminately that UBS was selling Lehman Structured notes as late as late March 2008 — after the Bear Stearns melt down that rocked Wall Street and ignited panic among Wall Street insiders. This indiscriminate sale is further evidenced by the fact that individuals from overseas, especially the U.K. are now seeking to retain Vernon Healy to assist them in pursuing UBS in connection with the sale of Lehman Structured Notes.

For more information, contact:
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
http://www.vernonhealy.com
http://www.protectinginvestors.com
(239) 649-5390    (239) 649-5390
Toll Free:   (877) 649-5394    (877) 649-5394
email: cvernon@vernonhealy.com
_______________

¹ Volume 3, page 880 footnote 3382 of the Examiners report.
² Id. at 976
³ Id. at 875
⁴ Id. at 836
⁵ Id. at 836

Vernon Healy files $800,000 investor claim against UBS alleging deceptive sales of Lehman notes

The Vernon Healy investor advocacy law firm filed an $800,000 claim today against UBS and accused the brokerage of committing gross misconduct when it marketed and sold $800,000 worth of Lehman principal protected notes to a Houston businessman as a safe and conservative “principal protected” investment in November 2007.

UBS (NYSE: UBS) designed the Lehman structured product and marketed it to its customers as safe and 100 percent “principal protected” even though in reality, the principal protected notes were essentially an unsecured loan to now-bankrupt Lehman Brothers, according to the Vernon Healy claim filed today. 

The claim, filed before FINRA, the Financial Industry Regulatory Authority, seeks compensatory and punitive damages against UBS on behalf of the investor. The Vernon Healy law firm has filed almost $2 million in claims against UBS on behalf of Lehman note investors in the past month alone.

These UBS-designed investment products supplied Lehman Brothers (LEHMQ.PK) with an infusion of unsecured loans from main street investors as Lehman Brothers’ solvency became a concern, according to the claim. The Lehman Brothers bankruptcy in September 2008 left Lehman note holders standing essentially at the back of the line as unsecured creditors.

After Lehman declared bankruptcy, the Texas investor received his October 2008 monthly statement, which dropped the value of the investment from $818,000 to zero, the claim states. This complete loss of valuation was contrary to the representation by UBS that the structured product was “principal protected,” according to the claim.

As the architect of these particular Lehman structured products, UBS knew or should have known of Lehman’s precarious financial position, but UBS urged its financial advisors to sell Lehman principal protected notes as safe to their clients, according to the claim.

Written material obtained by Vernon Healy as part of its pre-filing investigation shows that UBS disseminated misleading product descriptions to its financial advisors that portrayed the Lehman notes as investments that put none of the investor’s principal at risk, today’s claim states.

State securities regulators in New Hampshire have taken action against UBS for deceptive practices involving Lehman Brothers Asian Currency Basket Principal Protected Notes, the same product sold to the Texas investor filing today’s claim. 

International investors, particularly from the UK, were pitched Lehman structured notes by affiliates of Credit Suisse, Citi Bank and UBS.

Vernon Healy is a Naples, Florida law firm that represents 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.

Contact

Christopher T. Vernon, attorney at law

Susan R. Healy, attorney at law

(239) 649-5390
Toll Free: (877) 649-5394
email: info@vernonhealy.com


   

New Hampshire case against UBS involves same Lehman structured products as $1 million Lehman notes claim filed by Vernon Healy

A civil complaint filed in New Hampshire in 2009 involves the same sort of Lehman Brothers investment that is the subject of a $1 million claim filed in February by Vernon Healy.

Vernon Healy filed the claim on behalf of a Texas investor, a retired executive to whom UBS (NYSE: UBS) marketed and sold $1 million in Lehman Brothers principal protected notes. These notes were part of a Lehman Brothers’ so-called Asian Currency Basket Principal Protected Notes structured product. 

Vernon Healy alleges that UBS committed gross malfeasance by representing these notes as safe, with 100 percent of the investor’s principal protected. In fact, the investment was a highly complex product designed by UBS that carried significant credit risk.

This deceptive practice is similar to what the New Hampshire securities regulators accused UBS of in June. According to the New Hampshire Bureau of Securities Regulation, UBS sold investors the same Asian Currency Basket notes and portrayed the securities as safe.

New Hampshire regulators further allege that UBS failed to caution investors about the potential risks of the Lehman Brothers structured products once Lehman Brothers began to experience financial problems.

“UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions. The safety of these products was exaggerated. We believe UBS engaged in unfair and unlawful sales practices when presenting these investments,” Jeff Spill, Deputy Director of Securities Regulation Enforcement, said in a statement when announcing New Hampshire’s case against UBS in June. 

With the September 2008 bankruptcy of Lehman Brothers, many who invested in the company’s principal protected notes are likely to lose the majority of their investments. The Lehman Brothers bankruptcy is the largest such collapse in United States history, with more than $600 billion in debt.

According to Vernon Healy’s February claim, UBS was one of the architects of these Lehman Brothers structured products, and thus knew or should have known of Lehman Brothers’ troubled financial position. Yet UBS encouraged its financial advisors through internal “road shows” to pitch Lehman Brothers principal protected notes to their clients.

These UBS-engineered investment products served to infuse Lehman Brothers with unsecured loans from main street investors, even as the housing market declined and the credit crisis threatened Lehman Brothers’ solvency, according the Vernon Healy claim.

The Vernon Healy law firm is representing multiple Lehman Brothers principal protected notes investors in multiple states in cases against UBS. Most of these investors suffered losses in excess of $500,000. Vernon Healy is also investigating the sale of these Lehman Brothers structured products by the Florida-based brokerage firm Raymond James.

Since Vernon Healy launched its investigation almost 18 months ago, investors from around the world, especially in the UK and elsewhere in Europe, have approached the firm for information about Lehman notes. Many of these international investors were pitched Lehman structured notes by affiliates of Credit Suisse or Citi Bank as well as UBS.

Vernon Healy is a Naples, Florida based law firm that is representing multiple Lehman structured product investors in FINRA arbitration. Vernon Healy securities attorneys represent investors who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct. The firm assists clients in attempting to recover losses caused by all manner of financial fraud and negligence. It focuses its practice on complex financial litigation and arbitration as well as business and commercial litigation.