In 2006, the NYSE saw listings for structured products jump 50 percent to a value of $30 billion.  But as far back as 2003, FINRA warned UBS and other firms that PPN's might be unsuitable investments for retail clients.  If brokerage firms like UBS and others had actually disclosed how risky these investments could be, as these firms were told to do in a series of memos from FINRA, many retail customers would not have bought these products.

Among other things, in 2005, FINRA suggested that brokerage firms should consider limiting approval for PPN's and other structured products to retail customers who had been approved for options trading as an "investor safeguard."  NASD Notice to Members 05-59. 

FINRA also told its members, including UBS, Fidelity and Charles Schwab, that they should not recommend PPN's and structured products unless the firm and the broker have a reasonable basis for believing "that the customer has such knowledge and experience in financial matters that he may reasonably be expected to be capable of evaluating the risks."

To comply with these safeguards to protect retail customers, brokerage firms were required to establish internal procedures to deal with sales of PPN's and structured products - including procedures for approving retail customers for buying PPN's and structured products and providing additional training to brokers to sell these products. 

Reacting to FINRA's warning, UBS was supposed to update its internal procedures manual for the protection of its retail customers.  Yet recent government investigations show that UBS failed to implement these improved procedures.  For UBS, it was business as usual. 

As recently as November 2008, Bloomberg News featured our lawyers in a story titled "Lehman Good for Retirement Notes Worth Pennies for UBS Clients."  In that story, UBS denied responsibility, saying that UBS "properly sold" Lehman's structured notes to UBS clients. 

New evidence reveals that, as much as UBS would like to, UBS cannot continue to deny responsibility.  For example, the New Hampshire Deputy Director of Securities Regulation for Enforcement, recently said that "UBS engaged in unfair and unlawful sale practices when presenting . . . [PPN's]." 

Our own investigation uncovered similar sales practices at firms including Fidelity, Charles Schwab, UBS, Smith Barney and others in the offer and sale of PPN's and other structured products. 

These firms routinely concealed serious credit risks, most notably credit risks associated with Lehman Brothers and Lehman Brothers' products.   Consequently, investors did not know that their purchasing Lehman Brothers' products exposed them to the very real risk that Lehman Brothers might go under, which happened in September 2008.  

Sworn testimony recently given by UBS personnel leaves no doubt that, even before the general public knew, UBS knew that Lehman was in serious trouble, but UBS did nothing to warn its trusting customers. 

UBS underwrote many offerings including the following, which illustrate the types of risky products that Lehman issued and UBS sold to unsuspecting investors:

• 100% Principal Protection Notes linked to a Global Index Basket, Cusip 524908VP2
• 100% Principal Protection Notes linked to a currency basket, Cusip 52520W440
• 100% Principal Protection Callable Spread Daily Accrual Notes with interest linked to the spread between the 30 year and the 2 year swap rates, Cusip 52517P2P5.

The phrase "100% Principal Protection," especially when coupled with the imprimatur of Lehman's and UBS' then-venerable credibility, gave unsuspecting investors a false sense of security, which led to billions in losses.

If you or someone you know lost money in these or similar products, please, contact us immediately.

View Other News

Our PPN & Structured Products Investigation
July 10, 2009

Notice to All UBS Clients Who Purchased Structured Notes and Preferred Stock Issued by Financial Services Companies
June 19, 2009

NH Securities Regulators File Action Targeting UBS Sales Practices
June 3, 2009

Lehman Good-for-Retirement Notes Worth Pennies for UBS Clients
November 2, 2008