UBS to Pay FINRA Fine and Restitution to Investors in Lehman PPNs

UBS Financial Services Inc. will pay a fine of $2.5 million to FINRA and $8.25 million to investors as restitution to settle FINRA charges “for omissions and statements made that effectively misled some investors regarding the ‘principal protection’ feature of 100% Principal-Protection Notes (PPNs) [that] Lehman Brothers Holdings Inc. issued prior to its September 2008 bankruptcy filing,” according to a FINRA announcement Monday.

FINRA’s announcement states that “From March to June 2008 as the credit crisis worsened, UBS advertised and some UBS financial advisors described the structured notes as principal-protected investments and failed to emphasize they were unsecured obligations of Lehman Brothers, which eventually filed for bankruptcy in September 2008.” At issue was the “issuer credit risk” of the notes, which became relevant because of Lehman’s bankruptcy.

In a FINRA-UBS letter of acceptance, waiver and consent, FINRA described UBS’ alleged “statements and omissions having the effect of misleading certain customers,” and outlined “inadequate disclosures and FAs’ failures to accurately describe Lehman PPNs to certain customers during the relevant period.” The letter adds that UBS “failed to disseminate adequately to its FAs certain market information relating to Lehman’s financial condition.”