A recent class action suit against Lehman Brothers as well as an enforcement proceeding against UBS Financial Services by New Hampshire has encouraged investors to hire investment recovery litigators and pursue claims against firms selling Lehman Brothers principal protected notes in an attempt to recoup their financial losses. According to New Hampshire’s claim, UBS engaged in broker malpractice by failing to disclose the risky nature of principal protected notes (PPNs). As a result, New Hampshire investors lost 2.5 million.
Principal Protected Notes
Principal protected notes (PPNs) are structured investments that have been around for years. Like all structured investments, PPNs connect CDs and fixed income notes to the performance of currencies, commodities, equities and/or other assets. Structures investment products are legitimate investments, and principal protected notes are a legitimate form of them.
Structured investments may have partial or full principal protection. Some pay a variable sum at their maturity. Others pay by coupons that are connected to a particular index or security. Given their risk and return reports, structured investments in general are appropriate for the portfolios of many investors.
In short, they are unsecured promissory notes connect to referenced securities, and as such they are not without risks. Unfortunately, according to claimants, investment firms committed broker malpractice by marketing these products to customers as safe investment alternatives.
Marketing of PPNs to Retail Investors
Beginning in 2005, PPNs became a particularly popular type of structured investment for retail customers. Noting their increased sales to non-institutional customers, the Financial Industry Regulatory Authority (FINRA) expressed concern that brokers were committing a breach of fiduciary duty by marketing principal protected notes to retail customers as “conservative” investments with “predictable current income.” In fact, the agency issued a notice to brokerage firms in September of 2005 that clear guidance regarding the risks involved in these financial products should be given to retail customers.
PPNs, Lehman Brothers & Bankruptcy
When PPNs mature, investors typically receive a return on the principal from the borrower. In this case, the borrower was Lehman Brothers. Unfortunately for investors, when Lehman Brothers filed for bankruptcy, even the principal on these notes became unprotected. Lehman’s PPN obligations on the notes were unsecured–and behind secured notes in the creditor bankruptcy line up.
The Case Against Lehman Brothers
Unsurprisingly, investors are now seeking to recover their financial losses. Although the specific allegations of claimants vary, all assert that Lehman Brothers, selling brokerages like UBS Financial Services and others, committed broker malpractice by falsely marketing PPNs as conservative investment product alternatives.
Specifically, claimants allege, these PPN products were depicted as 100 percent principal protected if investors held them to maturity.
Brokers also presented the PPNs as principal protected if the indices underlying them held their value. Furthermore, firms and brokers did not warn customers of the risks involved in investing in PPNs, nor did they warn them about what would happen if the underlying backer of the notes, Lehman Brothers, defaulted. Customers were also not made aware of the Lehman Brothers’ decline and that its fall could affect their investment’s value, making it in effect worthless.
It’s also been alleged that firms continued to push PPNs after Bear Stearns collapse, a failure which should have been a clear indicator or “red flag” of the risks involved in investing in banks that hold large numbers of subprime mortgages. It’s also been alleged that firms pushed PPNs on retail customers at a time when they themselves were reducing their PPN holdings. The accuracy or falsity of these claims has yet to be determined. But if firms did indeed recommend PPNs while reducing their own holdings, litigators are likely to claim broker fraud rather than simply failure to disclose.
Did your financial advisor mislead you into investing in PPNs, causing you to suffer financial loss as a result? If so, you need the advice of an investment recovery counsel. Contact Carlson Law in San Diego at 619-544-9300 today for a free consultation.
Posts Tagged ‘breach of fiduciary duty’
Although it’s been three years since financial misconduct on Wall Street rocked the nation, investors still have opportunity to recoup some or all of their financial loss.
If you suffered financial loss during the recent crisis, your broker, brokerage or financial advisor may be legally responsible for that loss. A variety of legal actions can be brought against financial professioals for malpractice, such as negligent investment misrepresentation for making inappropriate investment product recommendations, intentinal securities fraud and inapropriate account turnover/excessive trading or “churning” to name only a few examples.
“Each state has different statutes of limitations for different kinds of claims,” explains Daniel Carlson of Carlson Law, a securities litigation firm in San Diego. “Your ability to file for damages depends on where you live and the kind of claims you have. While one state may have a three-year statute of limitations for all claims, others may have deadlines as long as 10 years for claims like breach of fiduciary duty. And in some states, the ‘discovery rule’ applies to fraud. That means the statute of limitations’ clock doesn’t start ticking until an investor ‘discovers’ he or she has been defrauded.”
Defrauded investors may also be able to file claims in more than one state. “It depends upon where you live, where you transacted business with your broker and whether the account agreement has a ‘choice of law’ provision indicating the state law that applies in the event of any claims,” Carlson says.
“And of course there’s more than one way to file a claim,” he adds. “If there are several options available, a good litigator will choose the state and the claims that give their clients the best chance of success.”
Did you experience financial loss due to your financial advisor’s misconduct? Did your broker lie to you about an investment? Did he or she give you advice inappropriate to your financial goals? Don’t wait any longer to fight for the compensation you deserve. Remember, legal deadlines do exist, and your time could be running out.
To discuss your options, contact Carlson Law at 619-544-9300 for a free consultation with an experienced investment recovery lawyer.
“Even if claims seem to have exceeded the applicable statute of limitations, defrauded investors should still contact an attorney,” Carlson advises. “By using all the legal means at their disposal, securities fraud attorneys can sometimes still recover client losses through arbitration even after a statute of limitations has expired.”
- Did Wall Street Bankers Commit CDO Fraud? (securities-fraud-lawyer-blog.com)
- Justice for Morgan Keegan Investors an Ongoing Struggle (securities-fraud-lawyer-blog.com)
Tags: breach of fiduciary duty, broker malpractice, churning, claims, damages, Dan Carlson, financial advisors, financial loss, fraud, investment recovery lawyer, Investor, Law, San Diego, securities fraud attorney, securities litigation firm, statutes of limitations, Wall Street
Posted in Broker Fraud, Fiduciary Duty Breach, Investment Fraud, Negligent Misrepresentation, Securities Arbitration, Securities Fraud, Securities Law, Securities Litigation, Stock Fraud, Stock Loss | Comments (2)
An arbitration panel of the Financial Industry Regulatory Authority (FINRA) has ordered the investment banking firm of Morgan Keegan to pay investors $881,000 in compensation for the financial loss clients sustained due to the company’s proprietary funds, which were concentrated in risky subprime mortgage assets.
The firm, which is a subsidiary of Regions Financial Corporation, cost clients approximately $2 billion in these, as well as other, high-risk funds: RMK High Income, RMK Multi-Sector High Income, RMK Advantage Income, RMK Select Intermediate Bond and RMK Strategic Income Fund.
Claimants alleged a variety of broker misbehaviors, including general negligence, negligent misrepresentation, negligent omission, breach of fiduciary duty and failure to supervise. They also claimed vicarious liability and breach of contract. They further maintained that Morgan Keegan violated not only FINRA rules but also the Securities and Exchange Act in its dealings with clients.
The panel found Morgan Keegan liable on a number of the claims and ordered them to pay compensatory damages to Kathy and Palmer Albertine ($33,382), Jon Albright ($105,844), Sam and Susan Davis ($254,642) and Kendall and Peter Tashie ($458,625). FINRA also ordered the firm to pay $26,850 in arbitration forum fees, $28,500 in fees for the claimants’ expert witness and $600 in nonrefundable filing fees.
- Citigroup Must Pay Claimants $54M in Damages in MAT/ASTA Investment Fund FINRA Arbitration (securities-fraud-lawyer-blog.com)
- FINRA Fines Wells Fargo for Slow Delivery of Prospectuses (securities-fraud-lawyer-blog.com)
Tags: breach of fiduciary duty, Broker Fraud, failure to supervise, financial loss, investment loss, Morgan Keegan, Negligent Misrepresentation, Regions Financial Corporation, RMK Advantage Income, RMK High Income, RMK Multi-Sector High Income, RMK Select Intermediate Bond, RMK Strategic Income Fund, Securities Fraud Attorney San Diego
Posted in Broker Fraud, Fiduciary Duty Breach, Investment Fraud, Negligent Misrepresentation, Securities Arbitration, Securities Fraud, Securities Law, Securities Litigation, Stock Fraud, Stock Loss | Comments (0)