Just over a year ago, investors first faced the waking nightmare of 150-year-old global finance giant Lehman Brothers making the largest bankruptcy filing in U.S. history. It was the first domino to fall in the chain of events that gave rise to a worldwide recession.
A year later, the fallout from the bankruptcy continues around the globe. While investors, including ones represented by Vernon Healy, are in various stages of seeking to recoup their losses through arbitration and the courts, governments facing pressure from those who suffered losses are likely to make a stab at regulatory changes to keep future investors from suffering the same fate.
In the U.S., UBS and others such as Raymond James sold investors Lehman structured notes promoting them as low risk and safe, but those structured products ultimately proved worthless in the wake of the Lehman collapse. The misery for these investors is shared in Asia by those who unwittingly bought similarly risky products called High Notes 5 and Lehman Minibonds through DBS and the Royal Bank of Scotland.
Investors from Singapore are now following the lead of their American counterparts and have recently begun filing multi-million dollar lawsuits against the firms that sold them these risky products. Some 10,000 small investors, many of them retired and risk averse, bought Lehman products that exposed them to far more financial danger than they knew.
It is worth noting by investors in Lehman structured notes that, at this point, authorities have found evidence of wrongdoing against the banks in Singapore that sold these other “low risk” Lehman products.
Alongside the lawsuits, these Singapore investors are petitioning the government for regulatory change, and insiders say there will likely be political fallout for the ruling party if there is none. But as in the U.S., these measures would be too little too late for small investors whose life savings have been wrecked following the Lehman collapse.
In the U.S., debate is now raging in Congress and on Wall Street about what form regulatory change should take to insure that future investors are not unknowingly exposed to financial risk.
Of note is the fact that securities regulators at FINRA (the Financial Industry Regulatory Association, formerly the NASD) warned brokerage firms as early as 2005 to provide accurate information to investors when selling structured products like Lehman Notes.
Among the proposals is an agency whose job it would be to look out for small investors and to spot products, such as Lehman structured notes, that are at best unsuitable, or inappropriate, for them. The proposed Consumer Financial Protection Agency is facing stiff opposition from the financial industry despite efforts this week by proponents of such an agency to scale back the scope of its mission.
The financial industry balks at the power of the agency and says it would kill creativity in the financial sector and put undue burdens on small business that offer credit to their customers. There are already some signs that discontent with big government and pressure on Congress from financial industry lobbyists could stymie any effort for meaningful change.
It will be interesting to see the final form of an agency aimed at protecting financial consumers, should it survive the political battle.
Vernon Healy is a Naples, Florida based law firm that assists investors nationwide in recovering significant losses caused by all manner of financial fraud and negligence in both court and arbitration.
The firm is aggressively investigating abuses by brokerage firms and representing multiple Lehman structured product investors in FINRA arbitration, among them:
-- Private investors who thought a comfortable retirement lay ahead. They now live with massive losses thanks to investments in Lehman Principle Protected Notes recommended by brokers who failed to adequately disclose risk.
-- A charitable trust that lost more than $900,000 in Lehman products. The trust’s representatives were led to believe the Lehman products had protected the principle investment. The losses have endangered this trust’s support of environmental causes, the arts and youth programs.
-- A couple who sold their successful business and planned to retire and live on investment income from the proceeds of the sale. The couple lost $650,000 of their principle to bad investments, some of which were made without the couple’s permission and included Lehman backed products.
