UBS to shell out $10.75M to settle Lehman-related row

UBS Financial Services Inc. has agreed to pay $10.75 million in fines and restitution to settle Finra allegations that its advisers misled clients about the “principal protection” feature of a Lehman Brothers Holdings Inc. bond product sold a few months before that firm filed for bankruptcy. The Financial Industry Regulatory Authority Inc. said some UBS advisers didn't understand the complexity of the 100% Principal-Protection notes that Lehman issued and failed to tell investors they were unsecured obligations. In fact, from March to June 2008, UBS Financial advertised the notes as if the principal was guaranteed as long as customers held the product to maturity, the self-regulator said. The principal isn't guaranteed under a default. Lehman Brothers filed for bankruptcy protection in September 2008. The structured notes also were “unsuitable” for some customers who purchased them, including those with “moderate” and “conservative” risk profiles, Finra said. “In cases, UBS' financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer's credit risk so investors would understand the magnitude of the potential losses,” Brad Bennett, Finra's enforcement chief, said in a statement. UBS agreed to pay $2.5 million in fines and return $8.25 million to customers to settle the case. It neither admitted nor denied the charges. "UBS is pleased to have resolved this FINRA matter, under which UBS is required to reimburse a limited number of investors who purchased certain Lehman principal protection notes during a discrete 3 1/2 month period of time," UBS said in a statement. "The significant majority of UBS's Lehman structured product sales were conducted properly and any client losses were the direct result of the unprecedented and unexpected failure of Lehman Brothers in 2008, which affected all Lehman investors."