Investment banking giant UBS is facing a slew of claims by investors for selling principal protected notes backed by the now defunct Lehman Brothers. UBS misrepresented the safety of the principal protected notes because it knew of Lehman's disastrous financial condition one year before Lehman collapsed. In reality, the so-called safe and guaranteed notes were loans to Lehman to help it remain solvent. UBS financial advisors were also led into believing that the notes were safe investments, which they continued to sell to investors well after Lehman's financial condition had grown worse. As a result, investors were left to be concerned with an unsuitable and risky investment that generated dramatic losses for their portfolio.

A Principal protected note is an investment contract with a guaranteed rate of return of at least the amount invested. Traditional fixed-income investments such as CDs and bonds provide investment security and modest returns with little or no risk of capital loss, while stocks have the potential to deliver greater returns, but with much greater risk. In recent years, investors have turned to structured products such as principal protected notes that offer both security and potential growth for their principal. Principal protected notes are linked to a broad range of underlying investments that may include indices, mutual funds, equities, and even alternative offerings such as hedge funds. At the heart of a principal protected note is a guarantee - typically guaranteeing 100% of invested capital, as long as the note is held to maturity. This means that regardless of market conditions, investors receive back all money they invested plus appreciation from the underlying assets, if any.

The Financial Industry Regulatory Authority (FINRA) has fined UBS $2.5 million for its sales practices with respect to Lehman structured products. FINRA also ordered UBS to pay $8.5 million in restitution to Lehman notes investors - an estimated $1 billion in Lehman notes were sold to investors. However, investors may only be able to recover as little as 10 cents on the dollar.

Principal protected notes are subject to the credit risk of the issuer. Consequently, if an issuer is not financially sound, it cannot guarantee 100% redemption of principal at maturity to an investor if the underlying investment deteriorates in value. UBS misrepresented the principal protected notes by not disclosing Lehman Brothers' association with the investment to clients, which left investors with worthless notes that could not be repaid due to Lehman's insolvency. However, investors can claim damages against UBS to recover losses for misrepresenting the nature of the notes, which mislead thousands of clients into an unsuitable and risky investment.

Have you suffered a loss in a principal protected note? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.