An irreverent Wall Street Blog
by Bill Singer
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

UBS Loses Lehman Structured Notes Arbitration.
Written: December 5, 2010

More than two years after Lehman Brothers imploded and filed for bankruptcy, that firmís legacy seems to be a dubious gift that keeps on giving -- and for some public investors, as well as many Wall Street professionals, that gift continues to be a world of pain.

The Red Ink Looked A Lot Like Blood

Back in 2007, when the financial world was careening off the side of the road and over the cliff, UBS was reported to be considering a merger with the increasingly desperate Lehman. At that time, Lehman purportedly had over $100 billion of its equity tied up in hemorrhaging mortgage and real estate investments,  which likely explained why the cost of Lehman CDSs (credit default swaps) had skyrocketed. In investigating the firm's financial situation as an understandable consideration for the purpose of the merger, UBS likely understood the reality of how bad things truly were -- perhaps even more so than most other market participants.

Perhaps the Definition of Risk?

Notwithstanding UBS's alleged knowledge of Lehmanís precarious financial situation, UBS continued to recommend the purchase to its customers of structured notes issued by Lehman, which were essentially a funding vehicle for Lehman by which that firm was able to secure loans with little, if any, collateral. Moreover, itís not like Lehmanís structured notes were exactly liquid investments in the dark days of 2007 and beyond. Still, for whatever reason, a number of Wall Street firms, including UBS, recommended these structured notes to the public.

Repo 105

Among the now ticklish problems for UBS is that while the firm was recommending the purchase by its clients of Lehman structured notes, UBS was lending money to Lehman pursuant to fully collateralized short-term loans at high rates of interest Ė now known as part of the Repo 105 program.

For a superb explanation of the Repo 105 program, read "Lehman's Repo 105 Counterparties Barclays, Mizuho, UBS, Deutsche Bank, And KBC May Have Attempted To "Squeeze" The Bank" (March 12, 2010) at

So Ė on the one hand UBS is profiting from the commissions/fees it generated via the sales to UBS clients of Lehman notes, and, at the same time, UBS was profiting from fees and interest that were generated by the firmís collateralized loans to Lehman.

By late 2008, the Lehman structured notes were largely illiquid Ė and certainly thatís an understatement by the time of the firmís bankruptcy. As to UBSís Repo 105 program with Lehman, well thankfully for UBS, it was largely able to pull the plug on its exposure before the likelihood of repayment was nil. The net result of all the dealing and alleged self-dealing is that by the time of Lehmanís bankruptcy, UBS clients who were invested in Lehman structured notes were largely stranded; whereas, UBS had jumped ship in terms of its own exposure to Lehman and wound up in a fairly strong net basis.

The Stuff of Lawsuits

UBS argues that it did not engage in unconscionable double-dealing. That argument is now being tested as UBS raises it in the form of its defense to investor claims. What has apparently troubled a number of public customer lawyers and prompted the filing of numerous lawsuits is precisely that seeming conflict.  After all, how could the same brokerage firm recommend investing in structured notes from Lehman (largely uncollateralized or poorly so) when, at the same time, that same brokerage firm is insisting upon fully collateralized loans from Lehman and only providing funds on the basis of relatively high interest rates? 

Case in Point

In a Financial Industry Regulatory Authority (FINRA) Arbitration Statement of Claim filed in November 19, 2008, Claimants Steven and Ellen Edelson alleged unsuitability, misrepresentation and omission, wrongful conduct, fraud, negligence, and breach of conduct against Respondent UBS. Claimants invested $529,688.00 in "100% Principal Protection Notes" and "Return Optimization Securities with Partial Protection" issued by Lehman Brothers Holdings and co-underwritten by UBS (hereinafter referred to as the "Lehman Structured Products"). Claimants requested rescission, or in the alternative, compensatory damages in the amount of $529,688.00, plus punitive damages, interest, attorney's fees, and costs of the proceeding. In Matter of the FINRA Arbitration Between Steven Edelson and Ellen Edelson, Claimants vs. UBS Financial Services, Inc.,Respondent (FINRA Arbitration Case 08-04357, December 2, 2010).

Respondent UBS denied the allegations made in the Statement of Claim and asserted various affirmative defenses.

This FINRA arbitration proceeded under the FINRA Public Arbitrator Pilot Program, which allows parties to choose whether to have a non-public arbitrator on the panel. On November 3, 2010, the FINRA Arbitration Award was served without indication that this case having proceeded under the Public Arbitrator Pilot Program. Therefore, the award was recently amended to reflect that the case proceeded under the Public Arbitrator Pilot Program.

The FINRA Panel found Respondent UBS liable for and ordered it to pay to Claimants compensatory damages in the amount of $529,688.00. Claimants were ordered to assign any remaining right, title, and interest in the Lehman Structured Products to Respondent.


clear pixel A Not-So Opulent Hedge Fund Goes Belly Up

This is a story that may seem a bit complicated but, in reality, itís a fairly basic tale. Stripped of all its Wall Street jargon, we are once again confronted with the all-too-familiar tragedy in which a misguided soul made a mistake and tried to undo the damage ó only to find that the problem went from bad to worse.

For starters, we have Opulent Lite, LP, a California limited partnership that was a hedge fund with approximately 70 investors and assets under management of approximately $30 million. Next, we have Trueblue Strategies, LLC, an investment adviser that provided advised Opulent Lite,  Now, enter, Neil Godbole, age 29, who was the sole principal and owner of Trueblue Strategies, and  beginning in 2005, was wholly responsible for managing Opulent Lite, including its trading decisions, recordkeeping and communications with investors

Apparently starting sometime around 2005, Godboleís trading strategy was to invest most of Opulent Liteís funds in short-term treasury bonds that would mature at the end of the fundís monthly trading period. The remainder of the cash was invested in S&P index options that would expire at the end of the monthly trading period.

So far, so good ó and then, so far, so bad.  READ the entire article at:


Previous Entries
March 26, 2015
Wall Street is supposed to be protected by smoke detectors in the form of endless amounts of rules and regulations, massive volumes of written superv... Read On
March 25, 2015
In 2006, after suffering several miscarriages, UPS driver Peggy Young became pregnant; and, in consideration of her prior pregnancies, her doctor ins... Read On
March 25, 2015
In the great 1967 film "Cool Hand Luke," we get that iconic line about "What we've got here is failure to communicate."  The scene involves the b... Read On
March 24, 2015
On March 24, 2015, the United States Supreme Court issued its Opinion in Omnicare, Inc., Et Al. v. Laborers District Council Construction Industry Pen... Read On
March 24, 2015
Stockbroker, Compliance, Legal, and Regulatory JobsEmployment Page Jobs#wallstreetjobs @brokeandbrokerNOTICE TO EMPLOYERS: Brok... Read On
March 23, 2015
Consumer advocates and regulators tend to dislike so-called "exotic" or "leveraged" Exchange Traded Funds ("ETFs"). Many of the concerns are legitimat... Read On
March 21, 2015
Merrill Lynch Blindsided By Former Employee In Promissory Note CaseThe big boys just don't tend to lose their promissory note cases with any regularit... Read On
March 20, 2015
The big boys just don't tend to lose their promissory note cases with any regularity: mostly because these cases are based upon executed ironclad agre... Read On
March 19, 2015
Good for the goose, good for the gander. Or so it is said. For those of us who practice law, we know that there are always exceptions, explanations, a... Read On Job Search

Related Topics
Tag Cloud
Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Morgan Keegan Arbitration Counterclaim Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC Ponzi Affinity Fraud Wachovia Raymond James Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX FBI Banc of America Pro Se PCAOB Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab Commission CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax Email Netschi Moore Whistleblower Street Sweeper Countrywide Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers SIPC IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Department of Justice Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Thain Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 Eligibility RRBDlaw Appeal Fowler LPL Johnson Cellphone US Airways JPM Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Rule 3050 Away Account Credit Repair PN Advisor Placement Group Fifth Amendment Forex Mortgage Private Placement Moon CGMI Failure to Supervise Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity Expense Reimbursement FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker Deferred Compensation RIA Prison Disclosure NASAA Aguilar FCPA Subway Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank Hospital Due Process God HSBC Private Placements Eric Stein Wire Fraud FINOP CCO Compliance Audit Joshua Brown Backstage Wall Street Obstruction of Justice Reuters Retaliation Variable Annuity Arbitraiton Outside Account Options Telephone Wine Series 7 Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA Disability MetLife Continuing Education Cheating OIP Tax Liens Willful CE Unregistered Impersonation Annuities BBVA Business Expenses ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Impersonator Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks RMBS AML PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement Money Market employment jobs Great Recession Chase Investment Services Arrest Barclays Liens Failure To Supervise Apple Time And Price T&P Willfully Husband Letter of Authorization LOA Sexism Debit Card Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Charge Sexist NML Argentina Embezzlement Silver Investor Alert Judgment Bank Fraud Deceased Bill Singer BrokeAndBroker TSSB OHO Leveraged ETF Mary Jo White Trustee Motion To Dismiss Frumento Conspiracy 6th Circuit Proctor Rule 3040 Class Action Beneficiary NYAG Schneiderman 11th Circuit Insurance Gallagher White Self Regulation Short Sale Compromise Website Rule 2010 TRO Supervision Vacatur Remand SDNY Rule 12206 BrokeAndBroker Bill Singer Piwowar Stifel Rule 1122 Article V signature Confidential Inside Information Reg SP VA Regulation SP Customer Rule 3270 Rule 3240 Annual Compliance Questionnaire OWB 2Cir Red Flags Payroll Stockbrokers Cybercrime Loans Altered Records
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+