Monday, December 7, 2009

Lehman Note Investor Obtains 1/2 an Award

A FINRA arbitration panel has awarded damages against UBS in favor of an investor who purchased Lehman principal protected notes.

While the WSJ is presenting the award as a significant win for the investor, and an indicator of the outcome of other cases relating to the Lehman notes, I am not so sure this is that big a win. According to the details contained in the article, the investor obtained 1/2 of the claimed damages, plus interest, costs and an undetermined amount for attorneys fees.

Some would say that any recovery is a good recovery, but is this really a win for the investor? The Lehman notes are worthless.

As in most arbitration awards, the three-person arbitration panel didn't give reasons for its findings. According to the WSJ, the investor argued  that the notes were "speculative derivative securities" and were "unsuitable" for unsophisticated investors. Investors, and brokers, need to be careful in these cases.

I addressed these issues in my column, Lehman Principal Protected Note Arbitrations. While 1/2 the loss is better than a total loss for the customer, it is not necessarily a win for the customer, nor should it be the standard for the other Lehman Note cases that have been filed.

I do not know the details of the case, but if the investment was unsuitable, then it was unsuitable, and the investor should receive compensation for the loss. In addition, suitability cases are fact specific and investor specific. You simply can't attribute the parameters of an award in one case to other cases.

I will continue to update the blog as new awards become available.


[Edited and updated 12/8/09]
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