UBS Loses Lehman Arbitration Note Claim by Small Investor

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won’t establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards & Kantas LTD LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009
FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009
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