UBS Advisors In Lawyers’ Sights Over Lehman Notes

Matthew Smith

4 November 2008

Lawyers in the US are making cases against UBS advisors for allegedly selling conservative clients into more than $1 billion of Lehman Brothers structured notes that are now almost worthless.

James Sallah, a partner with Florida-based attorney, Sallah & Cox, said he has taken calls from more than 40 clients who were sold Lehman structured notes this year but claimed they were not adequately warned of the risks.

“These are clients that were conservative investors put into these investments because they believed they were less risky,” Mr Sallah said.

Mr Sallah said he intended to initiate an arbitration process between his clients and UBS in an effort to get his clients’ money back.

Mr Sallah isn’t the only attorney in the US representing clients who claim to have been sold into the “less risky” investments by UBS advisors – news service Bloomberg quoted six separate law firms in New York, Miami and Florida saying they are taking calls from disaffected UBS clients.

A UBS spokesman said in a statement that UBS has been in communication with clients outlining potential alternatives while the insolvency of Lehman continues to be worked out.

“UBS properly sold these investments to its clients. The offering materials clearly identified Lehman as the issuer and discussed all the relevant risks and features of the product," the bank said in a statement.

The amount of UBS client money invested in the Lehman structured notes is believed to be in excess of $1 billion.

“The more financial issues the firm had towards the end, the more debt it was raising and the more notes it was issuing,” noted Mr Sallah.

Structured notes are generally constructed from a combination of bonds, stocks, commodities, currencies and derivatives and sold to retail clients by financial firms to raise funds.

Bloomberg said US state regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, citing Rex Staples, general counsel for the North American Securities Administrators Association.

Lehman filed for bankruptcy on 15 September leaving holders of the notes waiting in line with other senior unsecured creditors for what's left of their money, reported Bloomberg. The newswire quoted SecondMarket saying the notes with full principal protection are trading at 10 cents to 14 cents on the dollar.