Securities arbitration ended this month for a claim made by three clients against Neuberger Berman. The Financial Industry Regulatory Authority (FINRA) panel ruled on July 15th that Neuberger Berman must pay $5 million in damages, $450,000 in (3 percent annual) interest and $7,500 in legal fees. Investment attorneys stated that the financial award covered the investments of all three clients.
In 2008, the claimants were persuaded by broker Brian Hahn to invest in Lehman Brothers Structured Notes, named comBATS and XLF, despite the customers’ previous insistence to avoid any Lehman investments. According to investment attorney Alan Block, “The way the notes were sold it wasn’t clear that Lehman was the underwriter.”
Nicholas P. Lavarone, who also represented the claimants in securities arbitration, said, “The customers were all told that the principal of the structured notes were either fully protected or partially protected.” It was clear, however, once Lehman Brothers filed for bankruptcy and the structured notes became practically worthless, that Lehman was, in fact, the underwriter and they were neither fully nor partially protected. In addition to the structured notes, one of the claimants invested a sum of $1 million in a private-equity hedge fund named Libertyview Credit Select. The assets of this fund were lent to Lehman Brothers.
FINRA arbitration involving Lehman structured notes is nothing new since the company filed for bankruptcy, and panels have ruled in favor of investors several times since 2008. Though the FINRA panel did not issue a reason for deciding in favor of the claimants, Dr. Craig McCann of SLCG Securities Litigation and Consulting Group did testify that the structured products were “unsuitable,” which would make them a violation of the suitability standard that stock brokers adhere to. Furthermore, because of Lehman’s significant credit risk at the time of the transaction, the products were sold for far more than they were worth, even before Lehman went bankrupt.