Notes didn't protect Croce's principal -- once issuer Lehman went belly up; at least 40 cases still pending
UBS AG, Switzerland's biggest bank, will pay Pat Croce, former part-owner of the Philadelphia 76ers basketball team, about $2 million to compensate for losses on structured products backed by Lehman Brothers Holdings Inc.
A Financial Industry Regulatory Authority arbitration panel ruled June 9 that UBS is responsible for $1.52 million plus interest in damages. A UBS broker sold $2 million of “principal-protected” Lehman notes to Croce and his wife, Diane, on June 25, 2008, less than three months before the bank failed, said Jacob Zamansky, their attorney.
The Zurich-based bank sold $1 billion of the Lehman products to U.S. investors, according to spokeswoman Allison Chin-Leong. It's been ordered to repay investors some or all of their losses in seven of the eight cases involving the securities that have been decided by Finra panels.
“We showed the arbitration panel that UBS knew that Lehman was in serious financial trouble following the collapse of Bear Stearns,” Zamansky said in a telephone interview, “It misrepresented what it knew to its customers and its brokers”
The broker who sold the notes has since quit the firm, saying he was misled by UBS, Zamansky said. The New York-based lawyer has more than 40 pending cases against UBS for Lehman “100% Principal-Protection Notes,” totaling more $25 million, he said.
“The vast majority of Lehman notes were sold appropriately,” and the failure of Lehman was “unexpected and unprecedented,” Chin-Leong said. The panel voted 2 to 1 and didn't provide a reason for its decision.
Banks create structured products by bundling debt with derivatives and offer them to individual investors as an alternative to traditional investments. Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.
