UBS Ordered to Pay 2.2 Million in FINRA Arbitration Case
A panel of public arbitrators working for Financial Industry Regulatory Authority Finra has ordered UBS Financial Services to pay restitution of $2.245m, the largest award so far relating to the bank’s sale of Lehman Brothers principal-protected notes.The bank highlighted the split in the panel as it continued to maintain that the ‘vast majority’ of Lehman notes were sold appropriately. “UBS respectfully disagrees with two of the three arbitrators in this split two to one decision,” a UBS spokesperson told SRP. “The losses on the Lehman notes were the result of the bankruptcy of Lehman in 2008. That event was unprecedented and unexpected by virtually all major market participants, including UBS.”
According to Finra’s dispute resolution records, the arbitration was filed on behalf of Pasquale and Diane Croce, who invested $2m. Croce is, among other things, an entrepreneur and the former president and part-owner of professional basketball team the Philadelphia 76ers, author of several books and the founder of a Florida-based pirates artifact museum, which opened last year.
“We believe there was strong evidence presented to the arbitration panel that UBS knew at the time that Bear Stearns faltered in March 2008 that Lehman Brothers was in serious financial trouble, but didn’t disclose this to clients or its brokers,” said Jake Zamansky of Zamansky Associates in New York, the law firm representing the Croces. The Croces invested in the Lehman notes on 25 June 2008, just two and a half months before the bank failed.
According to Zamansky, the Croces’ broker, who was not named in the arbitration claim, testified that he felt UBS misled him about the Lehman notes and later left the firm. “It’s a wake-up call for UBS and the industry that credit risks need to be disclosed adequately and that brokers must understand the products they are selling,” Zamansky added.
This April, Finra fined UBS a combined $10.75m after finding that the bank had failed to adequately inform investors and brokers about credit risk and Lehman’s deteriorating condition, that it created and used misleading advertising materials, failed to provide sufficient broker training and did not establish proper supervisory policies, procedures and suitability guidelines for the sale of Lehman’s structured notes. UBS neither admitted nor denied the charges.