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Brokerage houses committed gross misconduct when it compared “principal protected” Lehman Brothers notes to ultra-safe certificates of deposit and assured investors that Lehman notes had a “guarantee” to repay all of her principal amount.

When an issuer goes bankrupt, as Lehman Brothers did, holders of structured notes are left standing at the back of the line with the other unsecured creditors and may recover little, if anything, of their original investment.

Lehman Notes investigation: SOREIDE LAW GROUP is representing investors who purchased Lehman notes sold by UBS, Wachovia, Merrill Lynch and Barclays.

While the indexes to which the products were tied may have had some diversification, the risk of repayment of the notes was heavily concentrated in a single industry — the financial industry — and much of that concentration was in a single company — Lehman.

This extreme concentration of this investor’s account in unsuitable, complex loan option products, coupled with the failure to adequately explain the nature of the securities or to disclose their risks to her, was especially egregious.

Major brokerage firms, including UBS (UBS), Merrill Lynch (MER), Barclays (BCS) and Wachovia (WB) sold principal protected notes in recent years and pushed their sales forces to dump these products on their own retail customers as they came off the underwriting assembly line.

According to Bloomberg, investors held more than $8 billion in Lehman structured notes as of September, with $2.8 billion of those sold in 2008.

As early as 2005, industry regulators from the Financial Industry Regulatory Authority (formerly known as the NASD) raised concerns about misrepresentations regarding the safety and complexity of principal protected notes and other “structured products.” Unfortunately, these investments aren’t slated to benefit from government efforts to shore up the financial markets because these principal protected and structured notes were frequently tied to derivatives. The government announced in October that derivative products aren’t eligible for government backing.

If you suffered losses from investments sold to you by a brokerage firm call attorney Lars Soreide of the Soreide Law Group today. Lars Soreide represents investors that were defrauded by their brokerage firms accross the US before the Financial Industry Regulatory Authority. Call 888-760-6552: No fee if no recovery, clients responsible for costs (such as filing fees paid direct to FINRA). It is our pleasure to review your case for free.

Structured Products are unsecured notes whose return is based on a “derivatave.” According to a UBS sales brochure, the returns on structured products are linked to the performance of the relevant underlying asset or index. However, purchasers of Structured Products did not own a direct interest in the underlying assets or index. In reality, Structured Products were nothing more than unsecured debt obligations of Lehman Brothers, and thus investors’ ability to receive a return of principal was dependent upon the creditworthiness of Lehman Brothers.

One category of Structured Products, called “100% Principal Protection Notes,” promised to return some or all of the investor’s principal if held to maturity. UBS’ principal selling point in recommending the 100% Principal Protection Notes was safety. For example, a typical Structured Products Client Strategies Guide that UBS delivered to investors stated that the offerings provided “100% principal protection at maturity.” Another structured products brochure showed principal protection notes on the lower left of a risk/return graph and described them as appropriate for conservative investors who week to participate in the market and receive full or partial principal protection at maturity.

UBS marketed Lehman Brothers Principal Protection Notes to conservative investors who sought preservation of capital. However, the proceeds of these investments were used by Lehman Brothers to help cover its mounting losses in 2007 and 2008. In some instances investors were not even aware that their investments were loans to Lehman Brothers. It was not apparent from the trade confirmations and monthly statements that the investors had purchased a Lehman Brothers offering, as those documents described the security as “LB 100% PPN.” By March of 2008, UBS knew that Lehman Brothers credit condition was deteriorating. On March 16, 2008, another investment banking firm, Bear Stearns Companies, Inc., was rescued by the United States government through an arranged sale to J.P. Morgan Chase. In the aftermath of the Bear Stearns collapse, it was widely speculated that Lehman Brothers might be the next investment bank to fail.

Throughout the spring of 2008, UBS issued a series of research reports on Lehman Brothers that discussed its deteriorating financial condition. On June 12, 2008, UBS suspended ticketing of five Lehman Brothers structured product transactions. According to an e-mail from UBS’ Structured Products Group, recent changes to Lehman’s management and the increase in volatility in the credit market warrant that we take additional time to determine if we want to move forward with these offerings this month. On July 14, 2008, UBS downgraded its recommendation on Lehman Brothers from “buy” to “hold.” However, despite its own negative internal assessments, UBS continued to sell Lehman Brothers Structured Product Notes through August of 2008. The last offerings closed less than three weeks before the Lehman Brothers bankruptcy.