On April 4, 2014, a FINRA arbitration panel awarded a former UBS Financial Services, Inc. (“UBS”) broker, Edward Dulin, $4,000,000 in compensatory damages, $1,000,000 in punitive damages, $250,000 in attorneys’ fees and $85,000 in costs based on its finding that UBS’s Structured Products Department purposely misled its brokers regarding the financial condition of Lehman Brothers and continued to recommend that its brokers sell Lehman Brothers structured products even though UBS had evidence of Lehman’s rapid decline. The Panel also recommended the expungement of thirty-nine (39) Lehman Brothers structured product customer complaints which were contained on Mr. Dulin’s registration records maintained by the Central Registration Depository (“CRD”). The thirty-nine customers had filed complaints with UBS, and UBS in turn filed Form U4s or Form U5s indicating that Mr. Dulin was the subject of such complaints. The Panel specifically found that the U4s and U5s filed by UBS were false and misleading because UBS caused any sales practice violations, not Mr. Dulin. The Panel also held in its Award that the UBS Structured Products Department continued to recommend this product to its brokers and customers “despite (1) mounting evidence that Lehman Brothers’ creditworthiness was crumbling, and (2) increasingly pointed concern among top UBS executives in the U.S., London and Zurich that the sale of Lehman Brothers products should be suspended.”
UBS is reported to have sold as much as $1 billion of Lehman’s structured notes to its customers. UBS marketed and sold this product to investors who were seeking to protect their investment while having the potential to obtain a return on their investment based on an anticipated increase in value of the underlying derivative during the term of the note. After some of UBS’s financial advisors sold Lehman structured notes to customers that were interested in the principal protection feature, they later learned that there were various problems with UBS’s sale and marketing of this investment, which included the following: (i) UBS failed to disclose to its financial advisors its concerns regarding Lehman as an issuer; (ii) UBS’s Structured Products Group was conflicted and incapable of performing proper due diligence on Lehman; (iii) UBS failed to ascribe any significance to the issuer of each note; and (iv) the prospectuses for the Lehman Principal Protected Structured Products did not adequately describe the risks. These are all problems with the product itself, and UBS purposely misled its own brokers in order to continue selling this “problem product.” The fact that the Panel awarded Mr. Dulin $1,000,000 in punitive damages as part of the Award, shows that it believed UBS’s actions to be egregious.
Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses, including “product problem” cases such as the Lehman structured note cases. Additionally, Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.