Published August 09, 2013
NEW YORK – UBS AG has agreed to pay $120 million to settle a lawsuit by investors who accused the Swiss bank of misleading them about the financial condition of Lehman Brothers Holdings Inc in connection with the sale of structured notes.
The preliminary settlement was disclosed late Thursday in papers filed with the U.S. District Court in Manhattan, and requires court approval.
It is UBS' second settlement in less than three weeks to resolve U.S. litigation tied to the global financial crisis.
Last month, UBS reached an $885 million accord with the U.S. Federal Housing Finance Agency to resolve claims that it misrepresented the quality of mortgage securities it sold to Fannie Mae and Freddie Mac.
The latest settlement resolves claims over roughly $900 million of Lehman securities that UBS underwrote and sold between March 2007 and September 2008.
Investors accused UBS of making materially false and misleading statements in offering documents about Lehman's financial condition and creditworthiness, as well as the "principal protection" feature of some of the securities.
Lehman had been Wall Street's fourth-largest investment bank before it filed for bankruptcy protection on Sept. 15, 2008.
UBS spokeswoman Megan Stinson said on Friday the Swiss bank was pleased with the settlement, saying it avoided the cost and uncertainty of litigation, and had set aside reserves to cover it. The bank did not admit wrongdoing in agreeing to settle.
Daniel Girard, a partner at Girard Gibbs representing the investors, also said he was pleased to settle.
"Our clients recognize that continuing the litigation would mean more delay and the risk of coming up empty-handed after more than five years of litigation," he said.
In a court filing, Girard said the accord compared favorably with other financial crisis settlements, and equaled 15.5 percent of the maximum $773 million recoverable statutory damages.
Principal protection notes are fixed-income securities that include a bond and an option component that offers a minimum return equal to the initial investment. They are tailored for risk-averse investors.
According to UBS, Lehman's principal protection notes reflected how some or all principal was an unconditional obligation of Lehman, even if the overall return was linked to market indexes or other measures.
In April 2011, UBS agreed with the Financial Industry Regulatory Authority to pay a $2.5 million fine and up to $8.25 million in restitution for misleading investors about Lehman's principal protection notes.
The case is In re: Lehman Brothers Securities and ERISA Litigation, U.S. District Court, Southern District of New York, No. 09-md-02017.