Corporate & Securities Law

SNSFE Continuing To Investigate As New Hampshire Securities Regulator Sues UBS Over Sales Of Principal Protected Notes

By James Eccleston

The New Hampshire Bureau of Securities Regulation has filed a Cease and Desist order against UBS Financial Services alleging unfair sales practices and unsatisfactory supervisory procedures and for recommending unsuitable investments to more than 40 New Hampshire investors.  The action relates to products underwritten by the now defunct Lehman Brothers and sold to the public by UBS.  Over $2.5 million is at risk for New Hampshire investors.

The products in question are complicated investment vehicles, so-called "structured products," many of which were sold promising principal protection.  These are notes connected to complex derivatives that are linked to various investments, such as Asian and other foreign currencies.  In theory, if the market value of the investment declined at maturity, Lehman Brothers Bank would ensure that each investor receives his or her initial investment back.  However, because Lehman Brothers declared bankruptcy in September 2008, investors who held these notes stand to lose much if not all of their principal.

According to Jeff Spill, Director of Securities Regulation for Enforcement, "UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions.  The safety of these products was exaggerated.  We believe UBS engaged in unfair and unlawful sales practices when presenting these investments."

Putting the action in context, Director of Securities Regulation, Mark Connolly, explained, "The Bureau believes UBS sold these products to New Hampshire investors without adequately explaining the potential for loss. UBS also failed to alert customers as to the declining financial condition of Lehman Brothers, which would affect the principal protection on the investment.  The Bureau believes UBS wrongly sold complex products to investors in our State.  The company violated a long standing legal requirement that a broker must recommend investments which meet the goals of the investor and are within his or her tolerance for potential gains and losses."

"We believe that 'principal protection' meant one thing to investors, but something entirely different to UBS," Kevin Moquin, staff attorney for the Bureau said.  "New Hampshire investors would never have invested in derivative-based investments had they understood what they were buying."

Connolly stated, "UBS has not been proactive in addressing regulatory issues at either the Federal or State level.  We understand that other regulators have experienced similar inflexibility.  We publicly encourage UBS to examine how it conducts its securities business.  Changes need to be made."  Connolly summarized, "The environment has changed and the system will not tolerate insufficient standards for suitability and supervision."

SNSFE continues to investigate the actions and inactions, representations and misrepresentations made by UBS in connection with principal protected notes.  Those with information should feel free to contact attorneys at SNSFE.

Source:  New Hampshire Securities Regulation Press Release

Full post as published by FinancialCounsel on June 12, 2009 (boomark / email).