Principal Protected Notes
Securities regulators in New Hampshire have been investigating principal protected notes and have released a statement announcing that the principal protected notes sold by UBS now stand to lose most of their value after the Lehman bankruptcy. The regulators noted that UBS misrepresented the safety of the products, which were actually very risky. New Hampshire has filed a cease-and-desist order against the bank. UBS continued to market Lehman principal protected notes as suitable products even after downgrading Lehman Brothers in March of 2008.
Principal protected notes, sometimes called guaranteed linked notes, are investment products linked to a variety of underlying instruments. The recently bankrupt Lehman Brothers specialized in creating these security products. The instruments combine derivatives with equities and fixed-income investments and are typically marketed to risk-averse investors.
The notes as marketed advertise guaranteed principal protection while still allowing for significant appreciation, implying to potential investors that the principal protected notes contain little or no risk. However, each principal protected note is its own security with its own risk/return profile, and many notes are opaque, complex investments with substantial risk. In most cases, the now bankrupt Lehman Brothers was the guarantor of the principal protection. Many of these securities have lost significant value because of their inherent risks and their association with Lehman Brothers.
Several major brokerage firms, among them UBS, Merrill Lynch, and JP Morgan, sold nearly $70 billion of these principal protected notes in the past year. Many financial advisors recommended these products to retired, risk-averse investors without informing them of the potential risk. Many investors were not even told that Lehman Brothers created the products.
Investors who held principal protected notes in their portfolios may have noticed significant declines in their investments. If your financial advisor recommended the purchase of these notes and the purchase resulted in damages to your portfolio, you may be in a position to recover your losses. Please contact Peter Mougey at Levin, Papantonio for a free consultation.
To learn more about our law firm please visit www.levinlaw.com
News:
UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges
June 4, 2009
UBS AG, Switzerland’s largest bank, recommended unsuitable investments to clients who bought securities underwritten by Lehman Brothers Holdings Inc., New Hampshire securities regulators said.
UBS Downgrades Lehman Bros. (LEH) to Neutral
March 17, 2009
Lehman Brothers Holdings Inc. (Lehman Brothers) serves the financial needs of corporations, governments and municipalities, institutional clients and high-net-worth individuals worldwide.
Lehman CEO Terminated
November 5, 2008
Lehman Brothers announced that its Chief Executive Officer, Richard Fuld, will leave the company at the end of the year. Fuld, who made $34 million in 2007, will not receive any severance or bonus upon his departure. Fuld was the company’s CEO from 1993 until the bankruptcy when the restructuring officer took over operations. When Lehman declared bankruptcy, it listed $613 billion in liabilities.
Lehman’s Principal Protection Notes Unable to Protect Principal
September 29, 2008
Before its bankruptcy, Lehman Brothers offered structured products called principal protection notes to risk-averse investors. Lehman promised that the products had “100 percent principal protection” as well as “uncapped appreciation potential.” While reviewing a brochure describing the products, Bloomberg.com found a risk factor noting that the notes will be subject to the credit risk of Lehman Brothers. Now that Lehman Brothers has declared bankruptcy, there is no one to protect the principal, and purchasers, who were sold principal protection notes by major brokerage firms like UBS, Merrill Lynch, and Morgan Stanley, face losing their entire investment.
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