UBS Lehman Brothers: What Did They Know—and When?

February 15, 2011, 5:30PM. By Gordon Gibb

New York, NYMore often than not, in the complex legal world, it is not what you know, but when you knew it that can get you in hot water. The withholding of important information at the worst possible time can have a devastating affect, as is alleged by investors who purchased UBS Lehman Principal Protected Notes prior to the collapse of the once-proud bank in 2008.

What's more, various awards against UBS as the result of the filing of a UBS lawsuit have been at full value—indicating that jurists weighing the claims of plaintiffs are of the view that the alleged deception was so complete, that plaintiffs were entitled to the full value of their losses.

Globe Newswire reported back in the fall that UBS Lehman structured notes effectively supplied the struggling Lehman Brothers bank with a vital infusion of cash at a time when it was desperately trying to stay afloat. Plaintiffs in various actions against UBS claim that investors were led to believe the products were principle protected, when in actual fact, they were not.

To that end, investors claim that UBS fed misleading information to brokers and financial advisors that spoke to the safety and security of the notes. In reality, they were anything but safe and secure. When the unthinkable happened and Lehman Brothers failed, investors holding UBS Principal Protected Notes through Lehman Brothers were left with nothing. The sad truth was that products believed to be an excellent risk (in fact, with the principle protected, risk-free) were found to be rife with risk.

Investors claim that had they known the products were not secure and were not in reality what they were represented to be, they would never have made the investment in spite of the heritage and size of Lehman Brothers.

Plaintiffs alleging UBS fraud claim that UBS had full knowledge of the precariousness of the Lehman Brothers situation, yet continued to push through brokers and financial advisors the various products related to Lehman—including Lehman principal protected notes and reverse convertible notes known to UBS as Yield Optimization Notes.

It has also been alleged that while all this was going on, UBS was making collateralized, short-term loans to Lehman Brothers at high interest to help the bank stay afloat. Thus, the allegation claims, UBS was reaping financial rewards by propping up the beleaguered bank (with full knowledge of its precarious state, it is alleged), while at the same time pushing investments that were exposing investors to significant risk.

Hence, the spate of litigation with regard to UBS investments and alleged Lehman Brothers fraud in this matter.