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Home > Cases > Lehman Structured Notes > Lehman - Return Optimization Securities Overview

Lehman Return Optimization Securities Hid Risks From Investors

Investors in Lehman Principal Protected Notes and Lehman Return Optimization Securities are now finding themselves caught in a financial tsunami. Both investments, which were sold by UBS and other brokerages, were marketed as “low-risk investments” designed to guarantee the kind of safety associated with “capital preservation.” The problem is the guarantee itself: It was only relevant if the issuer - in this case, Lehman Brothers - remained solvent.

To date, the world's largest banks and brokerages have reported nearly $700 billion in asset write-downs and credit losses. In the face of these losses, Wall Street investment banks have been forced to find new sources of capital. They found it in structured investment products tied to other securities, indexes, stocks or bonds.

Principal protected notes and return optimization securities are two such products - and Lehman Brothers is among the biggest issuers of both.

On Sept. 15, Lehman Brothers filed for Chapter 11 bankruptcy. With assets of $639 billion and debt of $613 billion, it was the biggest bankruptcy filing in U.S. history.

Meanwhile, Lehman has sold nearly $1 billion worth of retail structured investment products through late September 2008. UBS served as a major underwriter of the products, earning tens of millions in underwriting fees.

Investors, on the other hand, holding Lehman Return Optimization Securities and 100% Principal Protected Notes have experienced extraordinary financial losses because of Lehman and UBS' misrepresentation of the products and the fact that they actually were investments in Lehman Brothers Holdings and dependent on the company's fiscal health.

Moreover, UBS continued to market and sell the products as late as August 2008, all the while failing to disclose their true risk factors.

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.

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