Protecting Investors - Securities law attorneys investigating financial fraud and Wall Street misconduct involving Lehman Brothers, non-traded REITs, bonds, ETFs

Vernon Healy Securities Attorneys: Investors can't rely on government regulators to police Wall Street

As touched on by Gretchen Morgenson yesterday in her story “AIG to Sue Bank of America over Mortgage Bonds,” investors are not able to rely on government regulators to police Wall Street and other major financial institutions. 

As a result, they must go out and hire private lawyers to not only prosecute, but also investigate these deceptive business practices and frauds being perpetrated by the financial industry.   

The problem of weak regulatory and enforcement action is even more of a problem when it involves the pseudo-private regulator known as FINRA. 

Unlike the SEC and state regulators, which are subject to freedom of information and open government laws, the fruit of FINRA’s investigations are largely withheld from investors and their private attorneys. This is significant because when the SEC or a state regulator punishes a brokerage firm far more lightly than it should, at least private investigators can access much of the evidence of wrongdoing through the regulator.  

In stark contrast, FINRA does not consider itself a government agency with respect to making information publicly available from investigations that result in paltry fines (For example, see my blog post “FINRA fine of UBS for Lehman notes deception is woefully weak.” 

In other words, FINRA effectively refuses to share the evidence of its investigation with the investors it claims to support.   This is especially disconcerting given the new move in Washington to transfer much more financial industry oversight to FINRA. 

Contact Chris Vernon, founding partner of the Vernon Healy law firm, at 239-649-5390. Vernon Healy represents investors and businesses in arbitration and litigation involving all manner or fraud and financial and investment disputes. 

 

Vernon Healy Set to File Additional Lehman Notes Case against UBS

Naples, Florida – Vernon Healy is talking with investors throughout the US as well as international investors with potential claims relating to the sale of Lehman structured notes by UBS.

For example, a newly retired couple from the Midwest (winter residents of Southwest Florida) have retained Vernon Healy to represent them in their claim against UBS for gross misconduct. The couple were approached by their trusted brokers at the Bonita Springs branch of UBS to put both retirement money and inherited money into a new investment product – Lehman Brothers Principal Protected Notes.

Shortly after they purchased the notes, Lehman Bothers declared bankruptcy. The couple have now been offered less than three (3) cents on the dollar (i.e. less than 3% of the 2008 purchase price from a third-party buyer).

As investment professionals, UBS was well aware, or should have been well aware, that credit risk was an issue, especially since it sold the couple the Lehman notes after Bear Stearns’ collapse. After Bear Stearns’ insolvency crisis and near bankruptcy, UBS was well aware (or was recklessly ignorant) that credit risk had become an even greater concern for purchasers of structured notes. Nevertheless, UBS sold Lehman notes to these retirees.

Structured note sales have exploded recently in the U.S. as the brokerage industry discovered how much money they can make using a pitch that fails to adequately disclose the risks, complexity, and costs of these products. Instead, brokerage firms pitch the appealing "concept" of upside potential with downside protection.

The complexity of the product effectively conceals the flaws in the "concept" and hides the true risks from the investor. Brokerage firms’ own internal pitches to local financial advisors often emphasize the high commissions (usually in the range of 3%) and the short term of the products (which allows for recurring sales opportunities), while deemphasizing the risks (especially credit risk), diversification problems in overselling these products, outrageous internal costs and the regulatory requirements for pitching structured products to retail customers.

The result has been an explosion of structured notes sales to customers in the U.S. In 2004, approximately $32 million in structured notes were sold in the U.S. Within two years, in 2006, the amount of sales of structured notes had doubled to $64 million. The next year (2007), that number nearly doubled again to more than $110 million.

The retired couple in this article is the latest in a number of Lehman structured note investors who have turned to the Vernon Healy law firm for help in weighing their legal options, which include filing individual or group arbitration claims with the Financial Industry Regulatory Authority (FINRA). 

Vernon Healy is a Naples, Florida based law firm that assists investors nationwide in recovering significant losses caused by all manner of financial fraud and negligence in both court and arbitration.

The firm handles a wide variety of business and investment related matters, including disputes involving various types of securities and investments — e.g., REITs (Real Estate Investment Trusts), bonds and bond funds, TICs (tenancy in common), tax shelter products and strategies, program trading, land trusts, trustee malfeasance, subprime products, debt obligations, structured products such as ETFs and ETNs, pension and retirement funds, and other financial product and strategy issues.

Vernon Healy law firm files claim for more than $900,000 against UBS on behalf of charitable trust that invested in Lehman notes

Naples, Fla. — UBS engaged in gross misconduct when it marketed more than $900,000 in Lehman notes to a charitable trust as a safe and “principal protected” investment after public warning signs about Lehman Brothers’ financial solvency had surfaced, according to a claim filed today by the Vernon Healy law firm. 

The charitable trust, which gives to environmental causes, the arts and youth programs, stands to lose more than a $1 million on Lehman notes and other structured products sold to it by UBS. 

According to the UBS sales pitch, principal protected notes would return the entire original principal investment back to the investor even under a worst case scenario.  However, the notes were in fact risky, unsecured loans to Lehman Brothers, according to the claim. 

When an issuer goes bankrupt, as Lehman Brothers did, holders of structured notes are left standing at the back of the line with other unsecured creditors and they may recover little, if anything, of their original investment.

Structured products, including principal protected notes, were initially sold only to institutional investors.  More recently, major brokerage firms, including UBS (UBS), Merrill Lynch (MER), Barclays (BCS) and Wachovia (WB), have pushed their sales forces to dump these products on their own retail customers, said securities attorney Chris Vernon.

As early as 2005, industry regulators from the Financial Industry Regulatory Authority (formerly known as the NASD) raised concerns about the way that complex structured products, including structured notes, were being marketed to individual investors.  At least one European country has outlawed the recommendation of structured products to retail investors.

In the case of the charitable trust, the UBS investment advisor urged the purchase of Lehman notes in February and March, 2008, after significant concerns about Lehman’s creditworthiness surfaced within the investment world that UBS operates, according to the claim.

In fact, UBS sold the trust more than $600,000 in Lehman notes after the collapse of Bear Sterns and Lehman’s 2008 first quarter report raised concerns in the financial industry about its balance sheet.  As investment professionals, UBS was well aware, or should have been well aware, that credit risk was an issue when it sold the Lehman notes, the claim asserts.   

The Vernon Healy law firm is helping multiple Lehman structured note investors weigh their legal options, which include filing individual or group arbitration claims with the Financial Industry Regulatory Authority (FINRA). 

Through formal claims, the Vernon Healy law firm intends to show that conflicts of interest led UBS to misrepresent and inappropriately recommend Lehman notes and other structured notes to a wide variety of its trusting base of retail clients.

Vernon Healy is a Naples, Florida based law firm that assists investors nationwide in recovering significant losses caused by all manner of financial fraud and negligence in both court and arbitration.

The firm handles a wide variety of business and investment related matters, including disputes involving various types of securities and investments — e.g., hedge funds, TICs (tenancy in common), bonds, variable pre-paid forward contracts,  mortgage and debt obligations, pension and retirement funds.
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For more information, contact:
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
http://www.vernonhealy.com
http://www.protectinginvestors.com
(239) 649-5390
Toll Free: (877) 649-5394
email: acostanzo@vernonhealy.com

Lehman bankruptcy information for owners of Lehman notes and other Lehman structured products

If you own Lehman Brothers structured products, the Bankruptcy Court makes it easy for you to file your claim in the Lehman bankruptcy proceedings.  You may file your own proof of claim, or have your attorney file a claim on your behalf, but you also have a convenient alternative.

Wilmington Trust Company will represent the interest of investors who own Lehman structured products — including Lehman Principal Protected Notes — by filing a global claim in the bankruptcy.  In order to participate, you just need to complete the one-page Trustee’s Mailing Matrix and send it to Wilmington Trust.  If you own Lehman structured products (sometimes referred to as Lehman notes), you should have already received your copy of the Trustee’s Mailing Matrix in the mail.  However, if you do not have your form, click on the link at the bottom of this article to download a copy. 

You will need the following information in order to complete the Matrix form: 

• The name of your broker or investment advisor

• A list of the products you own, including the amounts and the CUSIP numbers.  CUSIP (Committee on Uniform Securities Identification Procedures) numbers are unique identifying codes that are assigned to all securities.  CUSIP numbers for individual products can be found on trade confirmations, which are the notices you receive when you buy or sell a security. 

It is too early to know how much, if anything, Lehman notes and structured products investors will recover in the Lehman bankruptcy.  At this point, it is not even clear what priority structured notes and other structured products will be given.

Ordinarily, structured product holders should have the same priority as bond holders; however, the bankruptcy court could decide to treat structured product claims differently.  One reason for differentiating between bond holders and structured product holders is that while a value can be readily established for bonds, structured products had no established price prior to maturity.   

Vernon • Healy recommends that Lehman structured product holders pursue all their recovery options.  In addition to filing a bankruptcy claim, investors with small claims should consider participating in the class action (which means timely completing and returning the class action claim forms). 

Vernon • Healy represents investors with larger losses who will likely fare better by pursuing their claims on an individual basis, as opposed to participating in the class action.  Click here to read more about Vernon • Healy’s efforts on behalf of individual investors with larger claims and click here to read more about the firm.   

Click here to download the Trustee’s Mailing Matrix.

Lehman Notes investigation: Vernon Healy law firm files first arbitration claim against UBS on behalf of investor who bought Lehman Notes sold by UBS

Naples, Florida — UBS committed gross misconduct when it compared “principal protected” Lehman Brothers notes to ultra-safe certificates of deposit and assured a Naples investor that Lehman notes had a “guarantee” to repay all of her principal amount according to a claim filed today on behalf of a Naples woman.  It now appears that she will suffer a loss well in excess of $100,000 of her principal investment in these structured notes that UBS described as principal protected.  

“When an issuer goes bankrupt, as Lehman Brothers did, holders of structured notes are left standing at the back of the line with the other unsecured creditors and may recover little, if anything, of their original investment,” the claim filed today by the Vernon Healy law firm states.

The investor, a single parent and elementary school teacher, sought safety for the limited funds she had received as an inheritance. 

Her UBS broker concentrated almost all of her investments — 95 percent of her account — in complex structured products, with all of those from a single industry sector, the financial industry. The broker assured her that her portfolio was diversified because the structured products were tied to various indexes, including the S&P 500.

While the indexes to which the products were tied may have had some diversification, the risk of repayment of the notes was heavily concentrated in a single industry — the financial industry — and much of that concentration was in a single company — Lehman. 

“The extreme concentration of this investor’s account in unsuitable, complex loan option products, coupled with the failure to adequately explain the nature of the securities or to disclose their risks to her, was especially egregious,” securities attorney Susan Healy said.

Major brokerage firms, including UBS (UBS), Merrill Lynch (MER), Barclays (BCS) and Wachovia (WB) sold principal protected notes in recent years and pushed their sales forces to dump these products on their own retail customers as they came off the underwriting assembly line, said securities attorney Chris Vernon.

Through formal claims, the Vernon Healy law firm intends to show that conflicts of interest led UBS to misrepresent and inappropriately recommend Lehman notes and other structured notes to a wide variety of its trusting base of retail clients.  

According to Bloomberg, investors held more than $8 billion in Lehman structured notes as of September, with $2.8 billion of those sold in 2008.

As early as 2005, industry regulators from the Financial Industry Regulatory Authority (formerly known as the NASD) raised concerns about misrepresentations regarding the safety and complexity of principal protected notes and other “structured products.”

Update for Investors Who Purchased Lehman Principal Protected Notes

Lehman Brothers principal protected notes and structured notes, which were typically pitched by brokers as safe investments that protected investors from losing their principal, today are mostly illiquid and trading for pennies on the dollar. According to a spokesman from SecondMarket, Lehman principal protected notes are selling for 10 to 14 cents for every dollar of principal invested.

The tragic part of these cases is that the investors who are getting hammered are not big risk takers.  They are typically conservative investors who were motivated by a sales pitch that focused on the safety and security of these very complex products. With respect to the product itself, the recent massive uptick in sales of principal protected notes is a classic case of major brokerage firms pushing their sales forces to dump these products onto their own retail customers as they come off the “underwriting assembly line.”  

Litigation and Arbitration claims will further reveal the extensive conflicts of interest that existed between the best interests of the brokerage firms and the best interests of their retail clients who trusted the firms.  Litigation and Arbitration will also likely reveal that a number of financial advisors did not have a genuine understanding of this product they were selling to retail customers.

Unfortunately, it doesn’t appear that these investments will benefit from government efforts to shore up the financial markets because these principal protected and structured notes were frequently tied to derivatives. The government announced in October that derivative products aren’t eligible for government backing.

The banks and brokerage firms who sold these products — primarily UBS (UBS), Merrill Lynch (MER), Barclays (BCS) and Wachovia (WB) — misrepresented the safety of these Lehman notes and neglected their duties to investors. According to Bloomberg, investors held more than $8 billion in Lehman structured notes as of September, with $2.8 billion of those sold in 2008.

Christopher T. Vernon, attorney at law
e-mail: cvernon@vernonhealy.com

(239) 649-5390