What's in a Name? Not Much, Say UBS Lehman Investors

March 4, 2011, 3:30PM. By Gordon Gibb

New York, NYIf there ever was a contravention in terms, it would be UBS Lehman Principal Protected Notes. In this case, the name certainly did not say it all after scores of investors suffered losses following the collapse of Lehman Brothers—a failure hailed as the biggest corporate collapse in US history.

Various plaintiffs participating either in class action or individual lawsuits, or arbitrations are claiming that not only did they believe the message fostered by the product name—that investment principal was protected—but also they were surprised to learn that UBS Principal Protected Notes were associated with Lehman Brothers in the first place.

While much of the world was caught off guard by the massive and seemingly sudden failure of Lehman Brothers, there were red flags flying in the close-knit financial community in the weeks before the Lehman collapse.

In e-mails released by the Financial Crisis Inquiry Commission and published February 15 in the International Herald Tribune, JPMorgan executive John J. Hogan wrote in a message to a colleague in September 2008, "[Lehman Brothers] sent the Junior Varsity—they have no proposal and are looking to us for ideas/credit line to bridge them to the first quarter…" The recipient responded, ''Let's give them an order for the same drugs they have apparently been taking to think that we would do something like that.''

UBS, in the fall of 2008, was conversant with the sliding fortunes of Citigroup and had actually cut equity finance lines to the struggling bank, until an eleventh hour appeal persuaded UBS to temporarily reverse their decision to trim Citigroup's financial lifeline.

Would UBS not have been aware of the declining fortunes of Lehman Brothers, together with the risk of a then-unthinkable failure? And what of investors who had purchased UBS Lehman structured notes?

Scores of disgruntled investors have sued, alleging UBS fraud. So far, investors who have filed arbitration claims against UBS through the Financial Industry Regulatory Authority (FINRA) have won seven out of eight cases. These "wins" add weight to those in the legal community who feel that in spite of a class-action lawsuit having been launched against UBS, investors who have suffered losses of $100,000 or greater may be well served to pursue an individual arbitration claim.