By Lorie Konish, On Wall Street
June 14, 2011
Former Philadelphia 76ers President Pat Croce and his wife Diane have scored more than $2 million in an arbitration award tied to principal protected notes originally issued by Lehman Brothers Holdings Inc.
A Financial Industry Regulatory Authority arbitration panel ordered respondent UBS Financial Services Inc. to pay $1.52 million in compensatory damages plus 6% annual interest from Sept. 15, 2008 to May 27, 2011. The size of the award was determined by taking the $2 million in compensatory damages that the panel decided the respondent was liable for and subtracting $480,000 remaining value of the investment.
The total value of the award is about $2.25 million, including the note’s sale value, making it the single largest dollar award with interest, said Jacob Zamansky, principal of New York-based law firm Zamansky & Associates, which represented the Croces in the dispute. The previous largest arbitration award on record for UBS’ sale of the Lehman Brothers structured products was $2.2 million in December. That was awarded to Thomas F. Motamed, chairman and chief executive of CNA Financial Corp., and Christine B. Motamed.
Through their claim, which was originally filed on Jan. 25, 2010, the Croces requested rescission of the purchase of the 100% principal protected note that was issued by Lehman Brothers, which is now bankrupt, and then sold by UBS.
The couple requested about $2 million in compensatory damages. The Croces also sought unspecified pre- and post-award interest, attorneys’ fees, costs, expenses, experts’ fees and forum fees. They also asked for punitive damages, and did not withdraw that request, though the FINRA filing states they did, according to Zamansky.
The causes of action alleged by the Croces in the case included breach of fiduciary duty, common law fraud, securities fraud, material omission, misrepresentation, unsuitability, and failure to disclose conflict of interest, among others, according to the arbitration document.
Arbitration cases involving the Lehman Brothers-associated structured investment products that UBS once sold continue to unfold. In April, FINRA also fined UBS $2.5 million and ordered the firm to pay $8.25 million in restitution for conduct related to the sale of the Lehman Brothers principal protected notes. That came after UBS did not properly disclose the risks to all of its customers in the sale those financial products, FINRA said at the time.
FINRA’s actions amounted to just a “slap on the wrist” for UBS, Zamansky said, which sold more than $1 billion of Lehman Brothers products. Zamansky represents and has represented more than 40 cases involving the Lehman Brothers products nationally.
“We believe that there’s strong evidence that UBS, following the collapse of Bear Stearns in March 2008, had serious concerns about Lehman’s financial condition, but hid those concerns from their customers and even their own brokers,” Zamansky said. “The arbitration panels, when they see this evidence, are throwing the book at UBS.”
In the arbitration involving the Croces, one of the three arbitrators dissented. More details of that decision were not made available.
“UBS respectfully disagrees with two of the arbitrators in this split 2-1 decision,” a UBS spokesperson said. “The losses on 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. We continue to believe the vast majority of Lehman notes were sold appropriately.”