Archive for the “Principal Protected Notes” Category

Structured finance products - the so-called safe alternative to riskier derivatives such as credit default swaps and collateralized debt obligations - were supposed to deliver healthy profits to investors, offering them an array of investing opportunities that carried minimal risks. Brokers eagerly pushed the instruments, wanting to cash in on the big commissions attached to their sales. Unfortunately for investors, a number of structured finance products failed to live up to their hype in 2008, with many suffering massive losses because of their ties to the financial health of troubled companies like Lehman Brothers Holdings.

As reported May 27 in the Wall Street Journal, structured finance products could be making a surprise comeback on Wall Street. According to the article, some brokers apparently are ramping up their efforts to sell the complex products to investors while they once again highlight their supposed safety factor as a key benefit.

Investors, however, might not be so eager to jump on the structured products bandwagon this time. Many are still reeling from last year’s debacle involving structured finance products, specifically reverse convertibles and principal protected notes. The latter investment in particular was responsible for causing millions of dollars in losses for investors after Lehman Brothers Holdings filed for bankruptcy protection in September 2008.

Two investors who poured their money into the Lehman principal protected notes were Jimmy and Jay Wang. According to the Wall Street Journal story, the brothers invested almost $70,000 in the notes - investments they thought to be one of the safest structured products available on the market. At least that’s how the instruments allegedly were described to the Wangs by UBS Financial Services, which sold them the notes.

Ultimately, following Lehman’s bankruptcy, the Wangs lost the majority of their investment in the Lehman principal protected notes. The two men have since filed an arbitration complaint with the Financial Industry Regulation Authority (FINRA) against UBS in an attempt to recover their money.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

When Lehman Brothers Holdings filed for bankruptcy protection on Sept. 15, investors who previously purchased the company’s 100% Principal Protection Notes (PPNs) thought they were protected. After all, Lehman’s own marketing brochures touted the notes as “100 percent principal protection.” Little did they realize that the value of the notes was contingent on Lehman’s own solvency. When Lehman filed for bankruptcy, it subsequently defaulted on many of the notes.

In the wake of the bankruptcy, a class action was filed on Nov. 6 on behalf of individuals who purchased Lehman Principal Protection Notes (PPNs) from UBS Financial Services, Inc. The complaint alleges that UBS brokers made false and misleading statements that omitted key facts about the risks connected to the Lehman notes.

“Investors should be aware of the pending class action,” said attorney Ryan K. Bakhtiari of Aidikoff, Uhl & Bakhtiari. “The class case has certain pitfalls that investors need to be aware of in selecting an attorney. In our opinion, most investors will fare better by filing individual arbitrations.”

The brokers who sold the Lehman PPNs are not targets of the investigation, according to the investors’ legal team, which includes the firms of Aidikoff, Uhl & Bakhtiari, of Beverly Hills, Calif.; Maddox, Hargett & Caruso, P.C., of Indianapolis, Ind. and New York, N.Y.; Page Perry, LLC, of Atlanta, Ga.; and David P. Meyer & Associates Co., L.P.A., of Columbus, Ohio.

For additional facts to consider before joining a Lehman Principal Protection Note Class Action, go to: http://www.marketwatch.com/news/story/Lehman-Principal-Protection-Note-Investigation/story.aspx?guid=%7BB1DCAE49-C622-4C49-BC55-CE6C17C887D0%7D

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Unprecedented growth and innovation in the structured finance market have intensified the need for greater transparency and improved risk management of certain structured products. A speech titled Structured Finance Activities: The Regulatory Viewpoint from Mary Ann Gadziala, associate director of the U.S. Securities and Exchange Commission, examines the challenges of these investments, and discusses the key principles for protecting investors, as well as the potential liability of financial institutions for securities law violations arising from deceptive structured finance products and transactions.

The speech can be viewed in its entirety at: http://www.sec.gov/news/speech/2006/spch092006mag.htm

For years, structured investment products (SIPs) were marketed by Wall Street as a way for risk-adverse investors to take advantage of stocks or other investments while maintaining some protection in the event of losses. Now, however, in the aftermath of the subprime crisis and the ongoing turmoil in the financial markets, many investors - especially those holding Lehman Brothers Return Optimization Securities or 100% Principal Protected Notes - are learning that some of the products fail to live up to their hype.

Structured investment products can take several forms. Generally, however, an SIP is an investment strategy that combines derivatives with other derivatives, including a single security, a pool of securities, options, indices, commodities, debt issuances, foreign currencies and swaps.

According to the Wall Street firms that invented them, the purpose of the products is to give investors access to commodities, stocks or other investments without actually having to “own” those assets.

In most instances, what investors do own is the unsecured debt of the issuer.

With Lehman Brothers’ Sept. 15 bankruptcy, the negative side of structured investment products is just now surfacing. The insolvency of Lehman means investors holding certain Lehman structured products stand to lose a substantial portion of their investment. Case in point: Lehman’s Return Optimization Securities and 100% Principal Protected Notes.

As reported Nov. 11, 2008, in the Wall Street Journal, some Lehman structured products are now trading for less than seven cents on the dollar, leaving U.S. investors who hold the products angry and broke. Many are now heading to court, filing class-action lawsuits against Lehman and the brokerages that sold them the products and failed to reveal their many risks.

In Hong Kong, where thousands of investors in Lehman notes face the prospect of losing their entire investment, about 200 individuals recently marched through the city’s financial district, holding signs that read: “Major bank fraud” and “My money gone, I don’t want to live.”

According to the Wall Street Journal article, the problems surrounding Lehman Brothers Return Optimization Securities and the 100% Principal Protected Notes could be just the starting point of what lies ahead. From January 2008 through early November, nearly $34 billion worth of structured investment products were sold to small U.S. investors.

What makes the issue even more disturbing is the fact that many of the investors in structured products are retirees or individuals nearing retirement age. They invested in principal-protected notes because they thought the products would, at the very least, give them back their original investment at a set maturity date. Moreover, many investors say their brokerage represented products like Lehman’s Return Optimization Securities or 100% Principal Protected Notes as a much safer investment than, say, stock investments.

Charles Brooks is one of those investors. Featured in the Wall Street Journal article, the Pennsylvania-based physician invested approximately 3% of his portfolio in two of Lehman’s structured investment products. When Lehman Brothers went bankrupt in September and he tried to sell the notes, the doctor was told to expect about seven cents on the dollar.

At 65, Dr. Brooks should be thinking about retirement. Instead, he may need to postpone that idea altogether.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

In what could become just the tip of a legal iceberg for UBS, Lehman Brothers and others over sales of Lehman Principal Protection Notes, a class-action lawsuit has been filed in the United States District Court for the Southern District of New York. Among the claims that the plaintiff, Stephen P. Gott, alleges: UBS, Lehman and officers and executives of both companies intentionally misstated key facts to investors about the Lehman Principal Protection Notes, as well as omitted information regarding certain risks.

The complaint further contends that UBS marketed and sold Lehman Principal Protection Notes as an investment suitable for investors who wanted to protect their entire principal investment. When Lehman Brothers filed for bankruptcy on Sept. 15, it subsequently defaulted on many of the notes. As a result, investors now face the distinct possibility of losing all or a substantial part of their investments.

On page nine of the complaint, which was formally filed Nov. 6, the plaintiff also asserts that Lehman Brothers actually used proceeds from the Principal Protection Notes for its own general business purposes, including funding other corporate operations that were suffering financially.

In addition to UBS, Lehman Principal Protected Notes were marketed and sold by several other brokerage firms, including Citigroup, Merrill Lynch and Wachovia. In each instance, the notes were touted as “conservative” investments. In reality, however, they were structured products that combined fixed-income investments with derivatives, leaving investors looking for conservative investments open to considerable - and unexpected - risk.

For these investors, Lehman Principal Protection Notes and their so-called advertised benefit of 100% principal protection translate into pennies on the dollar.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

While investors who are holding Lehman Brothers supposed 100% Principle Protected Notes now face losses of pennies on the dollar, Lehman CEO Richard Fuld raked in nearly $35 million in pay in 2007 - and $500 million since 2000. Until now that is. The disgraced businessman was terminated Nov. 5 by Lehman Brothers and will leave the company and the CEO post by year end - and without the customary severance package or bonus.

Fuld, 62, has faced harsh criticism from lawmakers and regulators in recent months for what many say were poor management decisions that ultimately led to the company’s demise on Sept. 15, when it filed for bankruptcy protection. Since that time, Fuld has remained at the helm of Lehman while restructuring plans for its assets were put in place.

The fact the Fuld is departing Lehman without the standard golden parachute may be precedent-setting, and could very well set the stage for other embattled executives whose misdeeds have led to millions of dollars in losses for ordinary investors.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Swiss-based UBS AG is facing yet another legal battle with investors - this time over sales of Lehman Brothers Principal Protected Notes, which are now deemed essentially worthless.

Structured notes are financial instruments that combine derivatives - including a single security, a pool of securities, options, indices, commodities, debt issuances, foreign currencies, and credit swaps - with equity or fixed income investments. In the case of UBS, attorneys representing dozens of clients of the firm say the investment banking giant touted the structured notes, also known as guaranteed linked notes, as a low-risk, conservative investment designed to preserve capital with the potential for uncapped appreciation.

What UBS failed to tell investors was the fact that the notes in question actually were unsecured obligations of Lehman Brothers, leaving investors vulnerable to a considerable amount of risk.

Apparently Lehman’s structured notes were sold just weeks before the firm declared bankruptcy on Sept. 15. Moreover, the notes reportedly were being used by Lehman to help finance its own financial shortfalls from losses stemming to bad bets on subprime-related investments. That means investors unknowingly put themselves at the mercy of the credit of the issuer: If the issuer defaults, as in Lehman’s case, the investment becomes worthless.

UBS, the fifth-largest brokerage firm in the United States, sold about $1 billion of Lehman’s structured notes to investors. Many of them were retirees. Now, despite the fact investors were told that the Lehman Principal Protected Notes had “100 percent principal protection,” they can expect to receive pennies on the dollar for their investment.  According to SecondMarket, a New York-based firm that provides a market for securities that are illiquid or barely trade, notes with full principal protection are trading at 10 cents to 14 cents on the dollar.

The latest revelation of UBS’ handling of the Lehman Brothers Principal Protected Notes adds to what has become a growing list of legal issues this year. Earlier in the summer, the company had to pay out nearly $1 billion related to charges over auction-rate securities sales. It also is being investigated by the Securities and Exchange Commission (SEC) for the sale of derivatives and investment contracts to state and local governments. The Internal Revenue Service has jumped on the UBS bandwagon, as well, looking into whether the firm improperly helped various U.S. clients evade taxes.

Now state regulators are considering forming a task force to investigate brokerage firms that marketed and sold structured notes to investors.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.