Stockbroker Arbitration Panel Awards Investors $530,000

New York, NYFor investors who think stockbroker arbitration is a waste of time and unlikely to recover any financial losses, news of a recent stockbroker arbitration award may come as a surprise. Although stock-fraud arbitration is not as high profile as a lawsuit, FINRA (Financial Industry Regulatory Authority) arbitration can recover some or all of an investor's financial losses.

According to Bloomberg (11/04/10), a retired couple who filed a FINRA arbitration claim against UBS has been awarded $529,688 by the FINRA arbitration panel. The couple bought principal protected products from UBS that were backed by Lehman Brothers Holdings Inc. as recently as August 2008. Lehman Brothers failed in September 2008.

Of seven FINRA arbitration cases, UBS has been ordered to repay investors some or all of their losses six times. The couple in this most recent case, Steven and Ellen Edelson, purchased $3.5 million worth of structured products between 2006 and 2008. Of those, $529,688 were issued by Lehman and sold under the names "100% Principal Protection Notes" or "Return Optimization Securities with Partial Protection." The Bloomberg article notes that those products are now worth pennies on the dollar.

An attorney for the Edelsons said UBS hid the risks associated with the products by using the phrase "principal protection." Some critics argued that use of the phrase "principal protection" gave investors the idea that they could not lose money on the investment. Furthermore, the attorney argued that UBS did not voice its concerns about problems with Lehman.

UBS officials said that their sales of those Lehman products followed regulatory requirements. They further said that the drastic loss in value of the notes was due to the unexpected collapse of Lehman.

Meanwhile, The Wall Street Journal (10/30/10) reports that although it has been almost three years since the auction rate securities market froze, many investors are still stuck with the securities, which were often marketed as a safe alternative to cash. Some banks and brokerages repurchased the securities from their investors, but investors who move their accounts from the firm that they purchased the securities from to a new firm have not yet settled.

This means that those investors may have to file a FINRA arbitration to get their money back. Whether or not a person files an arbitration or lawsuit could also depend on how quickly he needs access to the money.

Some auction rate securities investors are missing money invested in the securities, but could also have suffered what are known as consequential damages. Consequential damages occur when people do not have access to the cash invested in the auction rate securities and then miss out on a business project or cannot close on a property because the security is frozen. Those people may have lost money they put into the business project, or the property, believing they would be able to cash in their auction rate security to close the deal.